Golden Brick Reform – a gap in the budget?

Now that the dust has settled post budget, we have all had time to reflect on the impact of the government’s planned changes. Particularly the impact on the housebuilding industry as a whole (see our colleagues Nick Burt's and Erin Hughes’ thoughts on this here). And it is worth considering the changes that did not make the cut.

The BPF had hoped the concept of “Golden Brick” would be on the agenda. To (potentially) allow earlier sale of partially constructed housing schemes to registered providers – this would have been a welcome change (in addition to the additional funding now promised under the budget) to revitalise a stagnating market.

VAT legislation requires that a person must be “constructing” a dwelling to be able to zero-rate its sale. HMRC guidance (VAT notice 708) currently states that a partly constructed building  can be zero-rated for VAT purposes “provided a building is clearly under construction”, accepted by HMRC to be when “work has progressed above foundation level” (although developers may take differing views on when, precisely, this is met).  This “Golden Brick” threshold means that land cannot usually be sold pre-construction to registered providers (as they are not prepared to pay irrecoverable VAT on the price). In a stagnated market, developers often have to take the risk of commencing construction of affordable units before they are able to sell them. Or not commence. Harming delivery of much needed affordable homes.

To reach Golden Brick the development requires a level of on-site construction. Housebuilders are increasingly utilising modular construction where buildings are constructed off-site. These developments do not fit the traditional Golden Brick definition. And so there is further delay in delivery whilst the parties are “sure” Golden Brick has been achieved and zero rating achieved.  

The BPF had hoped that there would be “legislative change to allow zero rating of land sales where there is a residential development contract in place with a registered provider”, or at the very least a change in HMRC interpretation to allow Golden Brick to be reached at an earlier stage of works,  securing cash and delivery up front, but this was not in the budget. A missed opportunity? Going forward we suspect that they, alongside the HBF (who have similar views on the matter) will be lobbying for an amendment to HMRC guidance confirming that Golden Brick can be met at an earlier stage, and recognising the importance of the same in delivering our country’s much needed homes.