The Housing Forum supports the Government’s objective of building more homes, but our members report that current VAT rules around the ‘golden brick’ are inhibiting housebuilding, adding costs and delays. We are therefore calling on Government to consult on a simple reform to tax legislation that could unlock new homes. This measure does not require any subsidy or reduction in VAT rates, but simply a change to the point in the development process at which the current zero-rate is accessed.
What is the Golden Brick rule?
The ‘Golden Brick’ rule allows partly-built housing sold by a developer to an RP to be zero-rated for VAT purposes (and not with the standard rate of VAT that would otherwise apply to the sale of land). The housing must have started and progressed past the “golden brick” stage, which is typically when the foundations are laid.
Why does it hold back housebuilding?
The Golden Brick rule was put in place with a specific model of how RPs and private housebuilders worked together to build housing. However, The Housing Forum’s members find that the Golden Brick VAT rule forces developers and RPs into more complex legal arrangements than should be necessary, and are not compatible with the variety of different partnership models which can otherwise support more housebuilding:
- The rule makes it hard for RPs to get involved at an early stage – the lack of demand for S106 homes recently experienced are attributable to RPs being unhappy with the specification of the homes that developers are building – RPs getting involved earlier prevents this.
- It delays the point at which RPs are able to access grant.
- It causes cash-flow problems for developers, which increases costs, which are then passed on to the RPs.
- It is unclear how Golden Brick rules should be applied in situations of off-site construction (where a house may be ‘clearly under construction’ in a factory but could, in theory, be placed anywhere), or in phased sites.
- The difficulties lead to long and complex legal negotiations over whether the ‘golden brick’ stage has been reached on each project – adding costs and delays.
A technical note, prepared by some of our members, sets out the issue in more detail, alongside a proposed solution. The Chartered Institute of Taxation has also set out similar ideas.
The Housing Forum has long been a big proponent of partnership working, and recognises the serious financial challenge facing many of our members, particularly in the affordable housing sector. We therefore support this proposal, and think it has the potential to accelerate the supply of much needed new homes, without requiring subsidy from Government.