When buying a new home from a builder or developer you are not required to pay VAT on top of the purchase price because these such dwellings are exempt of VAT.
H M Revenue & Customs recognise that it is unfair to charge VAT to builders who build their own house/home, therefore it has put in place certain arrangements for the private individual building their own home, or converting a non-residential building into a home, to reclaim most of the VAT paid out.
Arrangements for reclaiming VAT are laid out in VAT Notice 431NB, “VAT refunds for ‘do-it-yourself’ builders and converters”, which can be obtained through your local tax office or downloaded from hmrc.gov.uk.
The scheme is only applicable to those building or converting for their own domestic use and occupation, and is not available for those who develop property as a business, where entirely separate arrangements are in place.