Housing Forum and NHF welcome consultation on changes to VAT treatment of social housing sites

The government’s pledge to revamp VAT rules on land intended for social housing has been welcomed by the Housing Forum and National Housing Federation (NHF).

The Budget documents yesterday said: “The government will shortly consult on the reform of VAT rules to incentivise the development of land intended for social housing.”

The Housing Forum, which has long argued that changing VAT rules could unlock more homes, said: “We are also very pleased to see a consultation on the VAT treatment of sites destined as social housing. This is something we’ve been calling for, and will help ease cash flow pressures.”

It is hoped the consultation will contain measures to tackle what is known as “the golden brick” issue. Currently, in order to qualify for zero-rating VAT on the sale of land to a housing association the developer must have started work beyond the foundations. If the land is sold before this point there is an irrecoverable VAT cost for the housing association.

The Housing Forum argues this forces developers and RPs into more complex legal arrangements and makes it hard for RPs to get involved at an early stage. It has also said it delays RPs’ access to grant and causes cash-flow issues for developers, while leading to long and complex legal negotiations over whether the ‘golden brick’ stage has been reached on each project.

A spokesperson for the NHF said: “This is welcome and we think it will improve efficiency and viability, and was something we wrote to the government about ahead of the budget.”

The NHF has said previously that changing the rules so the VAT zero rating applies at the point of land sale, where outline planning permission exists, would overcome the “delays, complexities and additional costs” caused by the ‘golden brick’ rule.

It said this “could accelerate affordable housebuilding at no additional cost to the taxpayer.”

Sean McGinnes, head of VAT at accountancy firm Saffery, said the golden brick rule has an impact on the timing of the transfer of sites to registered providers of social housing.

He said: “There is a tension between some social housing funding schemes, including some of the large schemes operated by Homes England, that require the RP to own the land before funding is released, and VAT law that requires housebuilders to have partly constructed each unit, before the favourable zero-rate can be available.”