Government moves to reduce VAT – incentivizing home improvements

Posted 2007-11-6

An alleviation of the value added tax (VAT), by the UK government comes as welcomed news to the Royal Institution of Chartered Surveyors (RICS); as it should make the modernizing of properties less expensive to achieve. 

Value added taxes come to different percentages across the EU states, but the minimum standard rate of VAT is generally 15% - although it can be as low as 5% in some cases and are applied to various types of supply such as domestic fuel and power in the UK. The maximum VAT rate in the EU is 25%.

However, even a 0% VAT exists in some EU States, most notably in the UK, as a result of pre-EU legislation. The UK also exempts or lowers the VAT on certain products such as milk (not purchased in a restaurant), although some staples such as feminine hygiene and baby products are still charged at a 5% VAT. 

But the good news is that UK Public Policy Manager at RICS, Luke Herbert, has noted that the rate of VAT levied on home renovations will be lowered to 5% for houses which have been vacant for at least two years.

The news was announced by Chancellor Alistair Darling, as part of a pre-budget report in October. The new VAT rate comes into effect on January 1st, 2008, and the reduction extends the previous rate of VAT for properties which have been empty for three years or more.

Mr. Herbert further proposed, “A reduced rate of VAT should be extended to carbon-reducing repairs and refurbishment of all existing buildings to further incentivise green living.”

The funding of renovations could be obtained through secured home loans with the structure used as collateral, in addition to an existing mortgage, even if the property is not yet owned outright.

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