Is Britain in danger of drowning under a sea of concrete?

As the Conservative Party enters the debate over housing policy for the 21st century, most of the political parties as well as a variety of pressure groups are turning their attention to the impact of VAT on housing.

The present VAT rules strongly favour new house building over the renovation and refurbishment of existing property.

New housing building is subject to zero rate VAT while work on existing property is normally subject to the standard 17.5 per cent rate. There are, however, some exceptions and zero rating also applies to the conversion of commercial property for first time residential use.

In general the VAT rules favour new construction. Recently, the Royal Institute of Chartered Surveyors has suggested a change to the VAT rules which could if enacted radically alter house building policy.

The simple suggestion is that five per cent VAT rate should be applied to restoring derelict housing to residential use and crucially, that the same five per cent should be applied to new housing.

The difficulty with this proposal lies with the EU Regulations which mean that introducing reduced VAT rates is extremely difficult. The Chancellor did manage to achieve this with domestic fuel but the danger of removing the zero rate altogether is that new house buyers could eventually face the prospect of paying full VAT, increasing typical house prices by between £10,000 and £15,000.

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