Proposals are afoot in Brussels which could end zero rating of new houses in the UK.
The EU Commission is considering removing the UK’s current right to zero rate new build housing, which would mean that buyers would then have to pay 20 per cent on top of current house prices.
The EU Commission has issued a consultation paper – Review of existing legislation on VAT Reduced Rates – but the title of the document is misleading because ‘reduced rates’ includes zero rating, and the consultation paper specifically refers to housing.
The review is taking place against the background of potential abolition of zero rating; not maintaining or extending it. The consultation follows on from an earlier EU Commission communication which wanted to simplify and standardise VAT rates across Europe, as well as expanding the tax base. One way of doing this is to take away reduced rates and zero rating.
The consultation says that it wants to follow through on its ‘Road Maps to a Resource Efficient Europe’. Housing is pointed out as one of the sectors with a substantial environmental impact. Better construction and use of buildings in the EU would influence final energy consumption, green house gas emissions and extracted materials. The EU are looking at significant improvements in resource and energy use during the life cycle of houses, with improved sustainable materials, higher waste recycling and improved design – all of which should contribute to the development of a resource efficient building stock.
In other words, it is not just about the original design and construction but the ongoing use. The intention would be to restrict zero rating or reduce VAT rates to those supplies that take this resource aspect into consideration. They also want to avoid additional or substantial levels of complexity – meaning simplification of VAT is the order of the day.
The EU Commission has tried to play down the proposals, and claim that they are simply collecting evidence and information but the reality is that they want to abolish, or severely restrict, zero rating.
At a time when the UK must increase its housing supply this could have disastrous consequences for the viability of housing developments and for affordability.
The EU’s proposals would make it even harder for aspiring owner/occupiers to get on the housing ladder. It would also have knock-on consequences for the landlords. This is because residential renting is an exempt supply so residential landlords cannot recover any VAT they have to pay. Landlords buying new properties will be affected in the same way, but the whole resulting increase would end up feeding through in time to the whole housing market.
Commenting for the RLA its Policy Director, Richard Jones said, “The EU Commission is wanting to put an end to the UK’s right to zero rate VAT on a wide range of items including new build housing. Both owner occupiers and private landlords would be badly hit if this were to happen.
“The consultation launched by the Commission has the potential to cause catastrophic damage to the housing market in theUKand we hope any such moves will be firmly resisted by the UK Government.”
- Read the EU’s consultation webpage: ‘Review of existing legislation on VAT reduced rates’.