VAT on land for social housing

The Government has launched a consultation that could meaningfully change how social housing development is structured and financed. Published on 23 June 2026 and open until 18 August, the HMRC and HM Treasury consultation asks for views on a proposed new zero rate of VAT for the sale of bare land intended for the construction of social housing.

The ‘Golden Brick’ problem

Anyone involved in social housing development will be familiar with the ‘golden brick’ (GB) rules. Currently, the zero rate of VAT for construction applies only once a development has progressed above foundation level - the point at which HMRC would determine that enough work has been completed on a piece of land for it to constitute a dwelling for VAT purposes. Before that point, the sale of bare land is either exempt from VAT (meaning the seller cannot recover input VAT on associated costs) or subject to VAT at 20% where the seller has opted to tax.

In practice, this means that registered providers of social housing (RPs) are often unable to take a freehold transfer or lease until GB stage has been reached. That has real consequences. Determining when GB level has been achieved requires plot-by-plot monitoring by third-party employer’s agents alongside a staggered and often cumbersome conveyancing process, all of which increases an RP’s overall delivery costs. It can also delay access to the largest tranches of Homes England grant funding, which are often tied to the point at which the RP acquires its land interest. The Government estimates that reaching GB can represent up to 60 percent of total project costs.

What is proposed

The consultation proposes extending zero-rating to the sale of bare land where the purchase is a ‘registered provider of social housing’. This would enable land interests to pass earlier in the development cycle, reducing reliance on GB structures and improving cash-flow for both developers and RPs.

The relief would be limited to entities registered with the relevant regulator - the Regulator of Social Housing in England, Welsh Ministers, the Scottish Housing Regulator, or the Department for Communities in Northern Ireland. A certification mechanism is proposed, broadly aligned with existing VAT certificate regimes with penalties for incorrect certification.

What the consultation is asking

The consultation poses 18 questions, covering a wide range of issues, including:

• How the current GB rules operate in practice and where they create the greatest problems
• How “social housing” and “registered social housing provider” should be defined for these purposes
• How the relief should be certified and evidenced
• The treatment of mixed tenure developments
• The implications of changes to development plans after land transfer to the RP

Why this matters for RPs and developers

If implemented, the relief could significantly reduce the structural complexity of many development agreements. The questions on mixed tenure (Q16) and post-transfer changes (Q13) are particularly important. Many schemes involve a blend of uses and/or tenures, and the interaction between any new relief and existing VAT rules for market sale or commercial elements will require careful design. We unpack some additional issues below.

VAT risk allocation

One issue the consultation does not directly address is VAT risk allocation. Under current GB arrangements, contracts are often structured on an ‘inclusive of VAT’ basis, with the seller or developer bearing the risk of any change in VAT law or HMRC practice that undermine the intended VAT treatment. Other structures pass that risk to the RP, or with a more nuanced mechanism allowing renegotiation between the parties in the event of a law change. 

Any new zero-rate will raise similar questions. If the relief is subsequently withdrawn, amended, or interpreted differently by HMRC, who bears that risk? This will need to be addressed expressly in transactional documentation.

Disapplication of the seller’s option to tax

Where a seller will not collaborate in a GB arrangement, or where funding requires an earlier transfer/lease, an RP may in some circumstances, elect to disapply the seller's option to tax. This reverts the transaction to being exempt and removing the VAT charge. 

In practice, however this is a significant step. It is rarely used in mainstream affordable housing development and is often expressly excluded by the contract. Where it is available, Sellers will typically seek to increase the purchase price to compensate for their resulting irrecoverable VAT position. While the net outcome to the RP may still be worthwhile, but it requires careful financial analysis. The proposed relief would, if implemented, offer a cleaner and less adversarial route to the same result.

Other issues

A number of practical considerations are not addressed directly by the consultation but will certainly require careful thought if the proposed relief is implemented.

In particular, enabling earlier transfer of land interests to RPs may shift a greater share of development risk onto the RP at an earlier stage. This could include risks associated with:

• Site access and infrastructure: including unresolved access issues around roads and service connections.
• Planning compliance: particularly where pre‑commencement conditions remain undischarged at the point of transfer.
• Site assembly and title constraints: which are often not fully de‑risked at an early stage.

As a result, parties may need to place increased emphasis on contractual protection mechanisms, such as conditionality, step‑in rights, longstop dates, and enhanced warranties or indemnities. These protections may, however, introduce additional cost and complexity, which could partially offset the intended benefits of the new regime.

The consultation response form is available online and responses can also be sent by email. The deadline is 18 August 2026.

Lucy Vannet is a Partner and Ben Halsey is a Knowledge Development Lawyer at Devonshires.

How Devonshires can help

Devonshires’ social housing and development teams work with RPs, their employer’ agents and developers as well as local authorities, grant funding bodies and other parties providing finance or investment, across the full lifecycle of social housing delivery, including land acquisition and development agreements.  They are closely following this consultation and are well placed to help clients think through how the proposed changes might affect their operations and how to articulate their experience to Government if they wish to respond.