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VAT could be cut on home improvements

19/10/05

The government is reportedly considering changing the rules regarding VAT on home improvements.

Deputy prime minister John Prescott is believed to be considering bringing down VAT on modernising older properties and introducing tax on new buildings in a bid to aid the regeneration of northern towns and cities.

According to the Telegraph, tax on new developments would be used to fund amenities, such as roads and hospitals, needed for new housing, particularly in rural areas.

The Treasury has apparently calculated that tax revenue would be reduced by lowering VAT on refurbishments, even if a tax on new builds was imposed. Under current regulations, developers refurbishing properties must pay 17.5 per cent VAT.

Mr Prescott is believed to have now persuaded the Treasury of the importance of changing the tax laws on renovations to regeneration schemes in Northern towns and cities. Conservation lobbyists have also called for changes to the VAT laws, blaming the failure of urban regeneration schemes in some areas on new building programmes in rural areas.

New buildings are currently zero-rated for VAT, but the Treasury is considering proposals to impose a tax that would pay for the amenities needed for new homes schemes, particularly in the south-east.

Manchester-based firm Urban Splash has warned that regeneration companies have been forced to demolish buildings in order to save cash and is urging the government to exempt renewal areas from VAT on property refurbishments. The company claims it was forced to include more demolition in schemes in Salford, Greater Manchester, and Sheffield to avoid paying VAT.