VAT on land transfers to registered providers to be zero-rated from April 2027
Following a consultation published in June 2026, the government has announced that VAT will be zero-rated on land transfers to registered providers of social housing from 1 April next year. According to the government’s response, this change is “intended to deal with inefficiencies in development sequencing, funding structures, risk allocation, and the timing of title transfer”.
The principal issue for registered providers is that, as things currently stand most cannot reclaim input VAT because their underlying services are classified as VAT-exempt. This means generally, when purchasing land that is subject to VAT, such VAT cannot be recovered.
Historically, this has been a major challenge not only for Registered Providers (RPs), but also for developers who have had to rely on complex structures such as golden brick agreements to circumvent VAT issues, with a transfer of a partially completed dwelling being deemed as zero-rated for VAT purposes. This deals with the VAT issue for a registered provider however, creates further problems for the developer, who must then fund not only the land purchase and any Stamp Duty Land Tax (SDLT) due, but also the costs of the works to golden brick level.
The proposed changes will simplify such transactions as any land subject to VAT can be transferred to a registered provider on day 1 with no VAT leakage. This will bring benefits for developers, particularly those who specialize in “partnerships transactions” where the whole site is sold to an end user RP including:
- Enhanced cash flow: the RP can fund the land purchase and start making monthly valuation payment for the works from the end of month 1.
- SDLT relief: pre-completion transaction relief may be available in such circumstances, which could lead to full relief from SDLT for the developer.
- Deal structure: for transactions with RPs there will be no further need for complicated structures such as “golden brick” or novation of the head contract to an RP so that an option to tax can be dis-applied.
It’s worth noting that golden brick may still be useful for sales to non-RPs that are unable to recover input VAT.
The impact of these change:
My view is it will simplify land transactions between registered providers and developers significantly, and these changes should be welcomed. Even better news is that the proposal is to be linked to transfers of land to registered providers rather than the ultimate intended land use, which will avoid complexities with mixed use and/or mixed tenure schemes.
If you would like advice on the proposed changes, get in touch with me or one of our experienced housebuilder and social housing teams who are here to help.
Land sold to RPs subject to zero rate of VAT from next Spring