Key Takeaways
- Building a new dwelling is zero rated for VAT; renovating an existing one is standard rated at 20% (gov.uk VAT Notice 708, sections 3 and 2.1).
- A full London refurbishment runs £1,500 to £3,500 per m². Building new in London starts at £2,250 to £2,800 per m² before fees and land (Architecture for London, 2026).
- New build owners save about £420 a year on energy, and 87% hold an EPC A or B against under 5% of older homes (HBF Watt a Save, 2026).
- A pre-1919 home averages 110 m² against 93 m² for post-1990 stock (English Housing Survey, 2026).
- Renovation is the better buy if you want space and to add value. New build is the better buy if you want certainty.
Should you buy a new build, or take on an older property and renovate it? This guide compares the two for London buyers in 2026, on cost, VAT, efficiency, space, risk and the chance to add value.
New build vs renovation at a glance
The differences are not evenly matched. Renovation wins on space, location and value creation. New build wins on certainty, running costs and, if you are building rather than buying, on tax.
| Factor | New build | Renovation |
|---|---|---|
| Cost of the building work | £2,250 to £2,800 per m² to build in London | £1,500 to £3,500 per m² to refurbish, on stock that sold at a discount |
| VAT on the building work | Zero rated on a new dwelling | 20%, or 5% if empty for two years or more |
| Energy | 87% hold an EPC A or B. About £420 a year cheaper to run | Under 5% of older homes reach A or B, but they can be upgraded |
| Space | Post-1990 homes average 93 m² | Pre-1919 homes average 110 m², with higher ceilings |
| Warranty | NHBC Buildmark, 10 years. Two years on the builder, eight on insurance | None. A survey and a contingency instead |
| Maintenance | Snagging first, then low for years | Roof, damp, wiring, windows, often at once |
| Risk | Lower, and the price is known | Higher. Hidden problems surface once you open up |
| Scope to add value | Limited. It is already finished | Significant. This is the whole point |
| Planning | No householder permitted development right lets you knock down a house and build a new one, so a rebuild needs full planning permission | Many extensions are permitted development |
| Council tax | Banded on completion | Extending does not re-band you until you sell |
| Timescale | Move straight in, or 6 to 12 months to build | 3 to 6 months on site for a full refurbishment |
The 20% most people miss
VAT is the single biggest structural difference and almost nobody prices it in. Under gov.uk VAT Notice 708, constructing a new dwelling from scratch is zero rated (section 3), while general alteration of an existing dwelling is standard rated at 20% (section 2.1). On a £200,000 project priced including VAT, about £33,000 of that figure is tax that a rebuild simply does not pay; on £200,000 of work before VAT, the gap is £40,000.
Two reliefs narrow it. A property empty for two years or more drops to the 5% reduced rate under section 8, and a conversion that changes the number of dwellings drops to 5% under section 7. Both need evidence, usually a letter from the council's empty property officer. Self builders can also reclaim VAT on materials through the DIY Housebuilders Scheme, and the claim has to reach HMRC within three months of completion.
The case for a new build
Certainty, and lower bills. 87% of new builds hold an EPC A or B against under 5% of older properties, and owners spend about £420 a year less on energy, £1,574 against £1,995, according to the Home Builders Federation. Behind that sits a 10 year NHBC Buildmark warranty, two years of builder liability then eight years of insurance on the structure and foundations, and no roof, rewire or damp bill waiting for you.
Set against that: smaller rooms, a price paid up front and very little room to add value. New is not the same as faultless either, since 93.7% of new build buyers reported problems such as snags to their builder after moving in, according to the HBF National New Homes Customer Satisfaction Survey published in March 2025. And if you are building rather than buying, no householder permitted development right lets you replace a house with a new one, so a rebuild needs full planning permission, and a new dwelling of any size is liable for Community Infrastructure Levy. Mayoral CIL for permissions granted in 2026 runs from £30.30 to £96.97 per m² depending on the borough's band, with the top band covering Camden, the City, Westminster, Hammersmith and Fulham, Islington, Kensington and Chelsea, Richmond upon Thames and Wandsworth, and borough CIL comes on top. Two things reduce it: the floorspace of the house being demolished is normally deducted if it has been in lawful use, and a self-builder can claim full exemption, provided the claim and the Commencement Notice go in before work starts. An extension to your own home is exempt, although at 100 m² or more you have to claim that exemption before work starts.
The case for a renovation
Space, location and headroom on value. A pre-1919 English home averages 110 m² against 93 m² for post-1990 stock (English Housing Survey, 2026), with ceiling heights no volume housebuilder matches. The survey is candid about why: older homes are far more likely to have been extended already, which is precisely what a renovation buyer inherits and can continue. Tired stock also sells at a discount, and closing that gap is where the money is made: a full refurbishment at £1,500 to £3,500 per m², or a cosmetic refresh at £800 to £1,200 per m² where the services are sound.
The catch is what you cannot see until you open up. Expect hidden problems: perished wiring, lead or lath and plaster, a failed roof, damp, and in London's clay boroughs the occasional subsidence question. A RICS Level 3 survey before you buy and a 10 to 15% contingency in the budget are not optional. Read our Victorian terrace guide for what typically comes up.
Can you close the efficiency gap?
Most of it, yes, which is where the new build advantage narrows. A period home taken back to brick can have insulation, glazing, airtightness and modern heating done at the same time as everything else, far cheaper than retrofitting one measure at a time. Moving an EPC from D to C costs roughly £1,000 to £2,000 if you are close, around £6,000 on average.
What you cannot fully replicate is a solid wall U-value in a building that has to stay breathable. Solid brick needs breathable insulation and lime, not cement, or you trade a heating bill for a damp problem.
Which is right for you?
Buy the renovation project if you want space, character and a return on your work, you have the budget discipline for a contingency, and you can either live elsewhere or tolerate living on site. In most of London this is the better financial decision, because the discount on tired stock plus the value of well-executed work exceeds the cost of the work itself.
One caveat before you pay a new build premium: across England new builds sell well above existing stock, but in London the average new build has sold below the average existing home in every month from January 2025 to March 2026, £504,870 against £545,689 in March 2026 (HM Land Registry UK House Price Index). That is a mix effect, since London new build sales are overwhelmingly flats, but it does mean the national premium is not a London rule.
Buy the new build if certainty matters more than upside: a fixed price, a warranty, low bills, nothing to manage, and no appetite for a project. That is a legitimate answer, not a lesser one.
Consider demolition and rebuild only where the structure is genuinely beyond economic repair, the plot justifies it and planning is realistic. The zero VAT rate is real, but it applies only if the building comes down completely to ground level, or you retain a single facade because planning required it. Keep more than that and the whole job reverts to 20%.
GS Renovation takes tired London homes back to brick and rebuilds them properly: see our home renovation service in London, which also covers the surrounding counties. If you are weighing up a property before you offer on it, contact us or call 07472 424 226 for an honest view of what it will take.