Currently, new residential construction is zero-rated for VAT. But renovation, repair and maintenance work is charged at the standard rate of 20%. This penalises refurbishment and conversion over new build construction, which is unhelpful at a time when the UK’s housing is in urgent need of upgrades for efficiency, capacity, and quality.
The remedy in this policy is to apply a reduced rate of VAT at 5% to both new construction and renovation. This would reduce the cost of a typical kitchen upgrade by £2,500 and add £7,500 to the cost of a new home.
The net budget effect is a loss of £1.5 billion in revenues, made up of £2 billion less VAT collected, and offset by increased renovation and refurbishment which is estimated to generate £0.5 billion in tax revenues (primarily from formalising work currently done cash-in-hand).