VAT Should Drop to Maximum of 5% on Renovations, New Report Argues

VAT Should Drop to Maximum of 5% on Renovations, New Report Argues

VAT on renovations should be reduced to a maximum of 5% to align the system more closely with new builds, a new report recommends.

The Building Better, Building Beautiful commission was established in 2018 to develop measures that would ensure new homes are built with high-quality design, and fit within existing communities. 

In its new report, Living in Beauty, which has been published today, the commission calls on the government to ‘align VAT on housing renovation and repair with new build in order to stop disincentivising the re-use of existing buildings’.

(MORE: Renovating a House: A Complete Guide)

Under the current VAT system the construction of a new-build is zero rated, while the vast majority of housing renovations and improvements are charged the full rate of 20%.

The report argues that certain renovation works such as reroofing, extensions, conversions and renewable heating’ should be zero rated or at most charged a reduced rate of 5%, as should ‘bringing derelict buildings back into use’.

(MORE: Can you reclaim VAT on your building project?)

Brian Berry, chairman of the Federation of Master Builders (FMB), welcomed the proposal. He said: “The FMB has been calling for a cut to VAT for many years, but the time really has come to make the cut.

“I am glad the commission has highlighted the perverse situation where people are incentivised to demolish old buildings, rather than restoring them, due to our archaic VAT regime.”

Making a Green Impact

The report said that the implementation of this VAT change could reduce 240,000 tonnes of carbon dioxide across 92,000 homes.

In 2019, the Architects’ Journal launched its RetroFirst campaign argued that “the greenest building is the one that is already built”, and the Living in Beauty report supported this message: “The need to address this commands increasing public recognition, having been championed by the Architects’ Journal in its RetroFirst campaign.”

The ‘inconsistency of the VAT position within a system that seeks to ensure the most sustainable and popular’ development outcomes was also highlighted.

But Berry insists that the report doesn’t go far enough. He added: “The Treasury should cut VAT on all domestic repair and renovation, not just the areas listed in the report. The upcoming Budget provides the perfect opportunity to do this, and to help make the UK a greener and more beautiful place.”

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