Land sold to RPs subject to zero rate of VAT from next Spring

Land sold to registered providers of social housing will be subject to a new zero rate of VAT from next Spring, according to the chancellor of the exchequer.

In his Budget address in the House of Commons today, John Healey said: “The Conservatives sold off our council housing. Labour is now building them back”.

“I’m extending cheaper borrowing for councils and making all land sold to social housing providers VAT-free,” he said.

Treasury documents published alongside the Budget explained that “The intended effect is to enable a relevant housing association to acquire land before the golden brick stage”.

Currently, most social and affordable housing development involve a ‘golden brick’ mechanism, whereby transfer of ownership is delayed until construction above foundation-level is reached, at which point the sale can be zero rated.

The government said it would lay secondary legislation for the measure early next year, with the rate to take effect from the start of April.

The policy is the result of a consultation on plans for a zero rate on land intended for the construction of social housing, which was first announced at last year’s budget.

A total of 97 organisations responded to the consultation, which ran from 23 June to 18 August. The majority were registered providers, with the rest comprising developers, consultants and representative sector bodies.

According to the government summary of the consultation, published today, respondents were “broadly in favour” of the measure, saying that the current golden brick arrangements “add complexity as well as being time consuming.”

It said respondents felt the zero rate would allow them “to access funding sooner and speed up land transfer allowing them to build new housing more quickly”.

However, concerns were raised that the measure could exclude joint ventures and wholly owned development subsidiaries, with some favouring eligibility based on the intended use of the land, rather than the identity of the purchaser.

After considering the evidence provided, the government has decided to proceed with the zero rate of VAT for land for sale to registered providers of social housing.

“This change will simplify the VAT treatment of qualifying transactions, remove unnecessary barriers to development, and ultimately support the delivery of much needed social housing,” the government said in its response.

Some respondents raised concerns about the risk of land being diverted to non-qualifying uses, uncertainty around the status of mixed tenure schemes, and the potential that landowners could capture financial benefit through higher land values.

“Respondents broadly agree that mixed-tenure developments are the norm and are often essential to delivering social housing,” the government said.

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“A relief limited to wholly registered providers would therefore have limited practical value.”

A substantial number of respondents preferred zero rating the whole land transaction where a registered provider intends to build social housing, rather than limiting the relief to the social housing part of the development.

In its response, the government said the intended outcome was “best achieved through targeting the relief at any land sold to registered providers, rather than the relief be[ing] conditional on the use of the land”.

“As registered providers have a broad purpose of providing social housing, acquisitions of land for wider uses are still likely to support that purpose,” it said.

However, it said the legislative framework would need to specify consequences for instances where the intended qualifying use is not achieved.