As far as I know . . .
thought i'd best start with that, as the information keeps changing from day to day it seems, but I think you can apply to be VHI when your mot is due, It is just like changing your taxation class, you fill in the relevant form and send it off. I personally would change the taxation class as soon as it comes in rather than apply when your mot is up and have a lengthy wait with a non road legal car.
As far as the engine swap goes, it is not a substantial change, it is pretty much like for like and is very possible it will be ok. Fred's article in the new club mag has more detail on this, pretty much stating that any engine that the car
could be bought with at the time of production
may still qualify for VHI status... so in my eyes that says in the case of the HB, you could get away with popping a slant in there, but an XE or a V8 is right out
Although as the 1256 was not available for the HB does this rule that out???
Reading the article again Fred states that:
"Engine- if the cubic capacity or number of cylinders is different from the original,
it is likely to be but not necessarily, the case that the current engine is considered a 'substantial change'. "
But here's the good bit....
"except where the change is made using the same basic engine"
so any 1057, 1159, or 1256cc engine is ok as it is the 'same basic engine'
and...
'or alternative original equipment engine.'
So a slant
Although i'd say in the case of the HB only a 1600 or 2000cc one as no HB came with a 1800 or a 2300 so i'd hazard a guess that they are not allowed.
So all the GT owners with a 2.3 better swap that out for the original 2000 before the G'men turn up
everything i've quoted is from Fred's article, which I assume he got from the DfT or DVLA
hope this helps