What is the current position?
Under existing VAT rules, the transfer of a site to a housing association typically takes place once construction has progressed beyond foundation level, allowing the transaction to benefit from the existing VAT zero-rate applicable to new dwellings. A mechanism widely known as a "Golden Brick" transaction. Zero-rating means the housebuilder charges 0% VAT to the housing association, while still reclaiming the VAT they paid out.
Whilst the model has served the housebuilding sector well, the current structure is widely regarded as administratively burdensome, costly, and slower than it needs to be.
What is proposed?
The Government has published a consultation on the introduction of a new VAT zero-rate for the sale of bare land intended for the construction of social housing.
The proposal would allow a qualifying registered social housing provider to acquire and take title of land before construction reaches golden brick stage, whilst still preserving the existing VAT benefits.
What impact is anticipated?
The Government has stated that the proposed relief is intended to:
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Remove the need for social housing developers to build to golden brick stage in order to access VAT relief
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Enable the earlier transfer of title to registered social housing providers
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Reduce reliance on complex chain transactions
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Support quicker delivery of social housing developments
For housebuilders - it would remove a transactional constraint, offering greater flexibility and reduced complexity. This is particularly the case for affordable contractors that are developing 100% affordable sites and wish to sub-sell ‘back-to-back’. The golden brick structure requires contractors to own the land up to foundation status (with associated financial impacts), or to involve complex tri-partite contractual arrangements to get around this, so the proposed change will allow this issue to be overcome.
For registered providers - earlier land acquisition could unlock development funding sooner, potentially accelerating schemes through the pipeline.
Will the change benefit housebuilders?
On the face of it, the changes should have a meaningful impact across the social housing supply chain by removing barriers and speeding up the process. An overall long-awaited change with an anticipated positive impact.
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