In his Spring Budget the chancellor should address the inequality in VAT between new builds, which are zero rated, and renovations, which incur tax at 20%.
Carol Peett, managing director of West Wales Property Finders, suggests a much fairer solution would be to bring renovations in line with the 5% VAT rate that is chargeable on renovating a dwelling that has been empty for at least two years.
She says that the current housing shortage could be helped by encouraging people to extend their living space. Adding an extension or converting an attic can turn a house suitable for a couple into one for a family.
This would also assist those caught up in the static property market caused, in part, by the reforms to stamp duty land tax by the previous Chancellor, George Osborne, which has deterred the older generation from downsizing and thus releasing family houses onto the market.
If couples are unable to move, and wish to extend their property to cater for a growing family, they are faced with a 20% VAT bill on any building works making it too expensive for many to contemplate.
There is also a knock on benefit in relation to social care. Many families are keen to look after their elderly relatives, but are unable to afford the VAT trap created when they want to build a granny annex.
Encouraging more people to renovate or extend would provide additional work for builders and trades such as electricians and plumbers. Also, it would be less attractive to do ‘cash in hand’ work to avoid the VAT.
A heritage benefit of this VAT reduction would be that many beautiful character properties, which at present are being levelled and rebuilt from scratch rather than renovated in order to avoid the prohibitive VAT charges, would be preserved.
Carol Peett said: “We have personal experience of the gulf between VAT on a new build and on a renovation. When we inherited our beautiful traditional Pembrokeshire long house from my parents it was in dire need of a complete overhaul.
“However, we were advised that it would be far cheaper to knock the house down and start again, which would have been complete sacrilege for such a beautiful building.
“We bit the bullet and undertook a huge renovation programme incurring 20% VAT but many in our position would make the more rational decision and properties such as ours would be lost to future generations.”