You may recall that in the November 2025 Budget, the Government announced it would consult on VAT improvements to support the social housing sector. Now, seven months later, the Treasury has commenced its consultation on the proposal.
The proposal is very welcome and long overdue. The idea is to bring forward the point at which a zero rate of VAT applies to a sale of bare land to registered providers. This will replace the existing "golden brick" time point that has suffocated the supply of social housing. Allowing zero rating at an earlier point should enable developers, as the supplier to the registered provider, to transfer title to registered providers and recover input VAT, without having to incur the significant cost (estimated at 60% of the overall cost of the dwelling) to reach golden brick stage. It will also enable earlier access to funding for registered providers, since they can only draw down a grant allocation when they acquire the legal title in the site. Currently, if registered providers are unable to use grant allocations within a particular period, the allocation can be lost and result in lower allocations in later periods.
For a proposal that is all about the faster delivery of social housing, the Treasury consultation hopefully will be done quickly. The consultation published yesterday opens the issue up for views on base principles which have been explored informally for many years. Specific detail of the proposal is limited and narrowly framed. It leaves open the question of what the earlier time point for zero rating would be, with inconsistent language suggesting it could be when bare land is "planned for social housing", or when it is "intended for construction", or "intended for development", or "intended to be used for construction", or more helpfully, simply when the land is being purchased by a registered provider of social housing. We would urge that it should be at the earliest point possible when the land is purchased by the registered provider and the provider confirms its intention to use it for social housing.
To minimise the risk of misuse, HMRC intend to create a confined definition of a "registered social housing provider", rather than use existing definitions of "relevant housing association". The provider would need to be registered with the relevant social housing regulator in their respective regional administration. HMRC will likely expect the provider to certify its eligibility for zero rating, adapting existing certification regimes, and require the seller to hold evidence of the certificate. There is no specific discussion of a "clawback" if the land is not used for social housing, but HMRC agree the landowner should not be expected to monitor how land is used after transfer of title. Penalties would apply to registered providers who issue incorrect certificates.
Interestingly the "exchequer impact" of the proposal is only £10 million per year, and this should be outweighed by the positive impact in supporting delivery of social housing, by reducing cashflow constraints and improving social housing availability.
The consultation will run until 18 August 2026 and we will be preparing a submission to put forward our views. We will be asking the Treasury to take urgent action to publish draft legislation as soon as possible and make it a feature of the November 2026 Budget. It was hoped that draft legislation would be issued last November 2025. It is time to press ahead and implement it.
Please let us know if you are interested to discuss the proposal and how it will affect your business. Thought should be given to ensuring any current contractual discussions take into account the expected improvement in the VAT treatment of land sales.
