With the Green Homes Grant folding, can the UK Government look to defer stamp duty for fixer-uppers to retrofit our way to a greener, post-covid economic recovery?
The CIOB was broadly supportive of the Green Homes Grant (GHG) as it had the potential to provide a boost to the construction industry, delivering a pipeline of labour-intensive repair, maintenance and improvement work. Certainly a commendable hypothesis, but as pointed to by recent inquiries by the Environmental Audit Committee and the Environmental, Food and Rural Affairs Committee, the GHG needed significant overhaul, to repair the trust of homeowners and tradespeople in green initiatives.
Rather than address its shortcomings, last week the Government announced that the GHG has been scrapped. This is disappointing given that Office for National Statistics (ONS) figures show England and Wales housing stock has an average EPC rating of D, which is below current targets to have homes at band C by 2035.
In the past there has been a sectoral suggestion for a stamp duty exemption for more energy efficient homes. Whilst this may look enticing, it should be noted that this exemption benefits the buyer and not the seller who had works undertaken at cost. It is therefore plausible to suggest sellers may not be induced to undertake works when they come to sell a property as the benefits, beyond increased saleability, are negligible.
In addition, there has been a sectoral campaign for a reduction in VAT for domestic repair, maintenance, and improvement works – which has been backed by CIOB and made stronger by representations from Scotland’s Minister for Local Government, Housing and Planning to the UK Government – which have also been disapproved.
It seems the sector needs to come up with more creativity to entice Government support for improving the UK’s domestic stock – particularly through the private sector.
Given its impact on buying behaviour, is there a role for the ever-changing stamp duty system?
The Chancellor himself introduced the stamp duty holiday to kick-start house buying and selling activity in April 2020, so maybe there is merit in using the tax to steer investment in energy improvement.
Renovation Benefits from Stamp Duty Holiday
The stamp duty holiday has been effective in kick starting the house buying and selling market, and numerous reports (most notably Checkatrade, August 2020) suggest that buyers who benefitted from the stamp duty saving would invest in home renovations.
However, these reports indicated that most of these renovations have been cosmetic modifications, such as new kitchens or bathrooms, and whilst this outcome is welcomed by construction sector participants – particularly SMEs and supply chain operators – it does little to contribute to the UK Government’s wider objectives around climate change mitigation and net-zero carbon targets.
There is opportunity here for the UK Government to evaluate the behavioural impact the stamp duty holiday has had and continue the trend of renovation and supply chain support, be it targeted toward energy performance improvement.
Defer Stamp Duty for Fixer-Uppers
The Government could consider deferring stamp duty liability on properties that have been purchased – by individuals, groups or businesses - with the sole purpose of improvement.
Once the enhanced property has been resold, the stamp duty liability is paid.
A short, illustrative example, is such:
A renovator purchases the property but doesn’t pay the stamp duty; the renovator fixes up the property and sells to a new buyer, who pays the stamp duty as per the norm.
The crux of this suggestion is to encourage investors to fix up older, less energy efficient stock for resale.
There are a number of caveats that need to be put in place to ensure the policy is not misused or is detrimental to housing market activity:
- Works must make significant improvements the energy performance of the property (measured through BER or EPC)
- Works must be carried out by suitably qualified professionals/VAT registered companies – ensuring quality design and works
- Occupation is not permitted during the period of wor
- Occupation by the renovator is not permitted after the works are complete, nor can the buyer become the landlord of the property.
- The stamp duty incurred should not increase from the first purchase
This last point is to counter potential issues around affordability. Given it is likely that works undertaken will increase in the value of the property, the stamp duty liability incurred at the point of the first purchase should remain the same for then the property is resold (assuming the price increases)
There are inevitably many pros and cons to this suggestion, it requires closer examination and costing to ensure viability. However, as part of a package of measures, it could provide a stimulus to counter the private sector’s inability or unwillingness to finance the greening of the UK’s homes which provide 15%+ of total greenhouse emissions. In addition, it could reinstate the Government’s aims to boost the construction industry by delivering a pipeline of labour-intensive repair, maintenance and improvement work that the GHG aimed to achieve; encourage the reuse and renewal of existing properties, and thereby save on embodied carbon; and contribute to the Government’s budget through continued revenue generation via the stamp duty regime.
It should be noted that stamp duty is only applicable in England and Northern Ireland. This same policy notion is applicable to the Land and Building Transaction Tax (LBTT) in Scotland, and Land Transaction Tax (LTT) in Wales.
The CIOB operates in the public interest, and this proposal is not CIOB policy; but we are keen to encourage creative thinking on ways to enhance the greening agenda through the construction sector and, by proxy, the wider economy.
Ultimately, deferring stamp duty could be another potential policy solution that should be considered amongst many, and would need to be utilised at different points to help achieve the core objective as set out in the national retrofit strategy. Only then can Government ensure a long-term commitment to repair, maintenance and improvement.
If you have any thoughts on this policy proposal, please email us [email protected]