In a document published on 23 June 2026, HMRC and HM Treasury are calling on social housing providers, housing developers, landowners, advisers and representative bodies to respond to an open consultation on the VAT treatment of land intended for the construction of new social housing.
This article examines the key proposal being consulted on, which is to bring forward the point at which VAT zero-rating can apply to the sale of bare land intended for social housing, as well as looking at the benefits and challenges associated with this proposal.
Our view is that the proposal represents what is potentially a “win-win-win” scenario for developers, social housing providers and the government by:
- improving cash flow for developers who will no longer have to wait for “golden brick” to sell development land;
- enabling social housing providers to access grant funding earlier by taking title to land sooner in the process; and
- supporting the government’s strategy to deliver 1.5 million new homes, by enabling developers and housing providers to get undertake more social housing developments, and to do so more quickly.
In view of these benefits, and in light of a political and economic climate in which the UK’s next prime minister is likely to be very keen to deliver on housing and growth, it would not be surprising if this proposal were not implemented relatively soon after the consultation closes on 18 August 2026 (although the pace of tax reform is often notoriously slow, so this is far from guaranteed). In any event, we would encourage interested parties to avail of the opportunity to push for, and hopefully shape, the changes by responding to the consultation. Simultaneously, developers and social housing providers may wish to seek to factor in the potential change to upcoming deal structuring.
The proposal
The consultation proposes a new VAT relief (in the form of a new category of zero-rated supply) for the sale of bare land on which social housing will be built. Under the current rules, zero-rating applies to the first grant by a “person constructing” of a freehold or long-leasehold interest in dwellings in the course of construction (or already completed).
The benefit of the zero VAT rate is that the landowner/developer does not have to charge VAT on the sale to the buyer (who will generally be making exempt onward supplies of housing and so not in a position to recover VAT), but at the same time allows the landowner/developer to recover their own associated VAT costs. Contrast this with an exempt supply, where no VAT is chargeable, but the landowner/developer is not able to recover VAT on their costs.
However, under the current rules, landowners/developers must reach the “golden brick” stage of construction before being able to transfer land at the zero-rate – transfers at an earlier stage are either exempt or standard rated (if the supplier has opted to tax), which generally gives rise to VAT leakage for one or other of the parties. The proposed change would bring forward the point in time at which the zero-rate applies to allow an earlier transfer of bare land to a social housing provider without any such VAT leakage.
The administration of this relief is proposed to be by way of a certification regime, based on existing VAT certification models (and attendant penalties regime for incorrect certificates). Under the proposals, a registered social housing provider would be required to provide a certificate to the landowner confirming the land is intended to be used for social housing, so that the zero-rate can be applied. The evidential and record keeping requirements would sit principally with the registered provider, and the landowner would not be expected to monitor how land is used after transfer of title.
The consultation sets out 18 questions looking at:
- the wider context of relevant development projects and where VAT rules may create barriers or impact activities;
- how a new relief would reduce complexities and administrative burdens;
- troubleshooting potential issues with the proposal, such as limiting it to registered providers, changes in intention, mixed tenure developments and other unintended consequences; and
- what support, guidance or other changes could help organisations utilise the new relief.
The benefits
The proposed new VAT relief has clear benefits for those involved in the delivery of new social housing, and also for the Government.
Developers
Developers will benefit from a cashflow perspective since projects will be funded much earlier in the development process. This means developers will not need to rely so heavily on third party funding (with associated costs). It should also limit the extent to which there is a need for piecemeal transfers of sites at golden brick, and for surveyors to certify golden brick status in respect of social housing. Less complex deal structures will mean lower costs and more certainty earlier in the project. In certain circumstances, developers may be able to sub-sell bare sites to social housing providers, thereby potentially benefiting from relief on SDLT. Under the proposal, landowners/developers will not be expected to monitor land use after the title is transferred; so associated VAT risk for them ought to be relatively low.
Social housing providers
Social housing providers will benefit from earlier access to grant funding which typically requires taking title to (or a ‘secure legal interest’ in) the land. Earlier involvement in the development may also give rise to more control over, and say in, the project as a whole. It is possible also that some savings made by the developer will be passed on to housing providers, and housing providers would of course also benefit from less complex deal structures.
Further, in circumstances where a developer insists on a pre-golden brick transfer of the land, the proposal offers a VAT-efficient solution without the downsides associated with use of a ‘DevCo’ structure.
Government
The proposed new VAT relief is effectively a tweak to the existing rules and broadly consistent with longstanding policy in this area – it does not represent a radical change of approach. The legislative mechanisms are already in place for similar reliefs and so should be straightforward to implement. The Exchequer Impact Assessment will not be available until the next fiscal event, so this is currently an unknown – but the policy seems likely to speed up delivery of new housing. The proposed change is low risk from a tax avoidance perspective given that registered providers are already tightly regulated and have familiarity with VAT certification rules.
The challenges
Whilst the idea of this new relief has been mooted throughout the industry for some time and will (if implemented) be a welcome change, there are potential challenges and complexities. Respondents to the consultation have the opportunity to help iron out potential complexities ahead of time. The consultation also asks broader questions around the barriers that VAT rules on land may have to the construction of social housing.
For example, the proposal only applies to land which will be used for the construction of “social housing”, which raises a question as to how this should be defined. Further, it only applies to sales of bare land – what about land with buildings that are to be converted into, or demolished to make way for, new dwellings? It is in theory possible for “relevant housing associations” to disapply a seller’s option to tax under existing rules, but this requires the seller to agree, and they are likely to suffer irrecoverable VAT as a result.
It is not clear how mixed tenure developments will be treated, and the consultation does not offer any guidance on how these might be treated – it simply seeks views on issues likely to arise in this area. An apportionment between different tenures might be possible in principle – drawing on the apportionment mechanisms included in other parts of the zero-rating legislation relating to construction of new dwellings – but has the potential to be unduly complex and thereby undercut some of the benefits of the new relief.
Finally, one benefit of the golden brick concept is that the development of new housing is certain to be underway at the time the supply is made. The proposed new policy requires only an (evidenced) intention to build and so will need to make clear within what time period the new housing should be completed, and under what circumstances a claw back of VAT may apply.
Planning ahead
The introduction of a new VAT zero-rate for supplies of bare land to be used for social housing has been long awaited. The industry should therefore embrace the opportunity to engage in the consultation process to show support for the proposal and highlight potential issues or sticking points so that the new policy can be designed and implemented as smoothly as possible.
With an incoming prime minister no doubt likely to be looking for quick wins, this easy-to-implement change, which seems likely to boost the delivery of new housing, could mean that we see the new relief come into force somewhat sooner than is typical for tax reforms of this sort.
So what does this mean now for structuring early-stage projects or horizon-scanning for new opportunities? Developers and housing providers should certainly keep the new relief in mind and perhaps seek to future-proof Heads of Terms where the new relief may give a better overall VAT position.
We frequently encounter fact patterns where a pre-golden brick sale to a registered provider is either necessary or desirable for non-tax reasons – and a new zero-rating would be very beneficial in such cases, provided of course that it is implemented in time. If the proposed change is not forthcoming in fairly short order, then there is presumably a possibility of some projects being delayed for its implementation – so perhaps all the more reason for the Government to press ahead with this as soon as possible.
If you would like to discuss how the proposals could affect your organisation or project delivery, please do get in touch.