In an attempt to level the taxation playing field for self and custom build, in Autumn NaCSBA petitioned government with recommendations for improvements to VAT and Stamp Duty Land Tax (SDLT). The recommendations were submitted to the Comprehensive Spending Review 2015, which announces public sector finance for the next four years, and is due to be delivered Wednesday 25 November.
A key element of the recommendation was to address the imbalance around taxation and the question of building plot sales. Currently this favours traditional developer routes to building, both in the way that stamp duty is calculated and the ways in which VAT and other taxes are levied. Currently, the tax system forces custom build enablers to supply plots with foundations and one brick course in place, the Golden Brick. This allows tax efficiencies to be put in place as it is an assurance that the plot is sold as a house in the process of being built, rather than as a plot which would attract tax. Not only does this force the hand of the custom build developer but it reduces flexibility for the homeowner – especially with regards to alternative methods of construction, as well as potentially raising the cost of the build.
In addition, there is a further tax issue in the way that councils recover VAT. This is due to the fact that there’s a question from a council perspective about whether VAT is chargeable or not on building plots that they have created and sold. DCLG has provided assurances that this will not be an issue for councils, but it is the responsibility of Government to ensure that these irregularities are removed and that councils know exactly where they stand in relation to the law.
“It’s a complicated picture and we had a duty to make the chancellor aware of the consequences of these imbalances that disincentivise custom build, together with suggestions for how to improve these systems,” said Mario Wolf, of NaCSBA’s Nationwide Research & Development Programme. “We estimate the cost of the foundations to be around £7,500 per property, which developers have to allow for. The industry feels that we need to address this, but we know it’s a slow burn as you can’t change tax rules easily due to the fact that it is the treasury, and not DCLG, that ultimately holds the decision making power.”
NaCSBA is to be applauded for pressing the case of self and custom builders to government. If Whitehall wants custom build to step in and fill a gap in the housing supply market, it should ensure that at the very least it is able to simply access the same tax breaks that conventional build routes benefit from. Similarly, local authorities need transparency so that they know where they stand legally.
NaCSBA’s imminent Toolkit launch will contain information to help navigate the tax requirements, and equally, if the Right To Build legislation includes a requirement for councils to bring on serviced custom build plots, then the issue of VAT on plots for them may yet be removed. We await the Spending Review to see if the recommendations have been well received.