New VAT proposals could ease the cost and complexity of land being acquired for development of social housing, reducing reliance on golden brick structures.
Published: 1 July 2026
Authors: Daniel Kennedy, Sarah Buxton & Carly Cutler
Introduction
The UK government has set an ambitious target of building 1.5 million new homes during the current Parliament, with a specific commitment to increasing the supply of affordable and social housing. The VAT treatment of land has been identified as a significant barrier that slows down development and complicates the delivery of these essential homes.
The government acknowledges that VAT recovery considerations heavily influence transaction structuring and timing, often leading to commercially complex and inefficient outcomes, and has launched a consultation on introducing zero rating on the acquisition of land intended for social housing.
Current VAT treatment: Key issues
Land acquisition by providers of affordable and social housing
The activity of letting affordable and social housing is exempt from VAT, meaning that the registered provider of such accommodation (the RP) does not need to charge VAT on rent payable by its tenants. However, it also means that the RP is not able to recover any VAT paid on the costs of acquiring, developing or letting that accommodation.
Therefore, where an RP is seeking to acquire land in order to develop new affordable and social housing, VAT is a key consideration given that it will be an absolute cost to the RP.
When acquiring land, the RP generally faces two potential VAT scenarios:
- The purchase of the land may be VAT exempt on the basis that the current owner has not “opted to tax” the land. This is attractive to the RP as no VAT is payable on the purchase of the land. However, in this scenario the current owner is unable to recover any VAT incurred in connection with the land. This VAT cost can be significant (such as VAT paid on originally acquiring the land, any improvements to the land, any planning costs or promotion fees).
- As a consequence, a current owner may decide to “opt to tax” the land, in order that it can recover all VAT it has incurred in connection with the land. However, in this scenario the RP must pay VAT in addition to the purchase price for the land.
Therefore, under both scenarios, VAT forms a cost to one or other of the parties and, unless the cost can be borne by the parties (potentially through price negotiations), the VAT cost can often become a barrier to the viability of the transaction.
In the past, attempts have been made to try to solve this issue. Where the current landowner has opted to tax, existing legislation enables the option to tax to be disapplied where the RP certifies that the land is intended for use as social housing. This enables the RP to “switch off” the VAT charge that would otherwise arise, but leaves the landowner unable to recover the VAT it has incurred on the property (and potentially liable to repay VAT previously recovered).
Zero-rating and the ‘golden brick’ requirement
Instead, the practice has developed whereby the current landowner and the RP seek to take advantage of the zero-rating regime for the construction and first sale of a new dwelling. Where zero-rating applies, the landowner does not have to charge VAT on the sale of the land (avoiding the RP suffering irrecoverable VAT) but is also able to recover most, if not all, of the VAT that it has itself incurred.
However, zero-rating only applies once the development of residential accommodation has reached the ‘golden brick’ stage (i.e. the point at which construction is above foundation level). Therefore, this can require the existing landowner to undertake the necessary work to construct the accommodation to “golden brick” in advance of the sale to the RP.
This creates several commercial challenges and inefficiencies. In particular, consideration has to be given to how the current owner will fund works to get the development to golden brick. There are also challenges around the RP not being able to take legal title to the property until this later stage, the need to monitor the progress of construction and additional complexity for multi-building or phased developments.
As an alternative approach, where this “golden brick” structuring with the current owner is not possible, the RP may have to use complex subsidiary development structures to manage VAT, which can lead to additional Stamp Duty Land Tax (SDLT) costs and administrative burdens.
Proposed reform: Zero rate for bare land
The government proposes a zero rate for land acquired by registered social housing providers, meaning that the RP is not required to pay VAT on the purchase of the land (thereby avoiding the irrecoverable VAT cost). This change would allow:
- earlier title transfer: Registered providers could take title to the land at the very start of the process, facilitating quicker access to funding.
- full VAT recovery: Landowners would be able to recover VAT on their costs incurred in connection with the land (such as VAT paid on the original purchase, planning costs, promotion fees etc.) without charging VAT or needing to wait for construction to reach the ‘golden brick’ stage.
- reduced complexity: The need for ‘golden brick’ monitoring and complex chain transactions would be significantly reduced, supporting a faster construction pipeline.
Scope and eligibility
In order to minimise the risk of misuse, the proposed relief would apply only to ‘relevant housing associations’, broadly meaning registered providers of social housing registered with the appropriate regulator in the relevant UK jurisdiction.
However, questions remain as to how the relief will operate in more complex developer-led or joint venture structures.
Administration and compliance
The government is considering a certification-based regime, under which:
- the purchaser (registered housing association) would certify that the land will be used for social housing;
- the seller would rely on that certification to zero-rate the supply; and
- the purchaser may be subject to penalties if the certification proves to be incorrect.
Responsibility for compliance would largely sit with the registered provider, although HMRC is likely to expect the seller to retain appropriate supporting evidence.
Our view & key considerations
We consider the proposed changes to be a positive development. The current VAT law creates inefficiencies and delays in the delivery of affordable housing that often impact the viability of projects. The proposals would simplify existing VAT-driven development structures, reduce the need for artificial structuring (such as “golden brick” arrangements or development subsidiaries), and enable earlier and more efficient recovery of VAT across projects.
Risks and challenges
Notwithstanding the above, a number of important issues will need to be addressed in the detailed design of the relief:
- the potential for misuse where land is not ultimately used for qualifying social housing purposes;
- practical challenges in mixed tenure developments, where only part of a site may qualify for relief;
- the need for clear definitions and robust safeguards, to ensure consistency of treatment and minimise disputes with HMRC.
We also question the application of zero-rating in scenarios where the land is being sub-sold to the RP, which can be common in situations where a developer or promoter has been required to undertake “site assembly” in order to deliver a viable project.
Timing and next steps
The consultation runs until 18 August 2026, with responses expected to inform the final policy design.
Key takeaways
This proposal has the potential to be a material simplification of VAT in social housing transactions, in particular by:
- reducing reliance on “golden brick” structures;
- enabling earlier land acquisition by registered providers, unlocking access to funding; and
- improving overall VAT efficiency and therefore project viability.
However, much will depend on how tightly the relief is defined and administered, particularly in more complex development models.