Government under strong pressure from greenfield campaigners to withdraw tax exemption on new-build

The VAT trap: Urban Splash’s refurbishment proposals for Langworthy

The Treasury is taking a fresh look at proposals to introduce an equal VAT rate on new-build and refurbished properties.

Treasury civil servants have been consulting conservationists over plans to bring new-build properties, which are exempt from VAT, into line with refurbished dwellings, which are subject to the standard 17.5 % rate. Critics say this discrepancy gives developers a perverse incentive to build on greenfield sites when they ought to be prioritising brownfield refurbishments.

The ODPM recently contacted the RICS to find out information on refurbishment costs with a view to assessing the impact of harmonising the two rates.

This development follows intensive lobbying by a number of bodies, including English Heritage and the RIBA, which raised the VAT issue at a meeting with the DTI this week.

Tom Bloxham, the chief executive of Urban Splash, has told the government that the amount of VAT it receives from refurbishment projects in regeneration areas is often outweighed by the public subsidy it pays out.

The regeneration specialist was forced to alter a groundbreaking scheme to refurbish 350 terraced properties in the housing market renewal area of Langworthy, Salford, so it could avoid paying VAT.

The government will come under further pressure to rectify the anomaly when Lord Rogers’ reconvened urban taskforce publishes its updated report next month in the run up to the pre-Budget report.

Neil Sinden, policy director of the Campaign to Protect Rural England, said he was encouraged by the willingness of the Treasury to debate the issue. He said that harmonising the VAT rules would give developers a powerful incentive to refurbish, potentially increasing the proportion of homes provided on brownfield sites to 80% of total housing starts.

Ewan Willars, the RIBA’s policy director, said the Treasury had been the main obstacle to progress on the issue, and it would still have to negotiate any changes with the European commission.

Alan Cherry, the chairman of Countryside Properties, said raising VAT on homes would not lead to higher house prices. He said: “New house prices are fixed by the market which takes its lead from second hand sales that are 85% of sales.”