Chancellor warned: tax red-tape is thwarting affordable homesprogrammes » Communities » 24dash.com

National Housing Federation press release For immediate release: Friday 6 October 2006 CHANCELLOR WARNED: TAX RED-TAPE IS THWARTING AFFORDABLE HOMES PROGRAMMES

The National Housing Federation has warned the Chancellor that tax rules are hindering the efforts of publicly funded housing associations to solve the country's housing problems. 

The Federation's Pre-Budget Submission highlights the danger that millions of pounds could be diverted away from one of the Government's flagship home ownership programmes by rules on Corporation Tax.

The submission also argues that the VAT system on housing refurbishment should be reformed to promote more energy efficient homes and help housing associations to combat fuel poverty.

CORPORATION TAX ON LOW COST HOME OWNERSHIP SCHEMES Housing associations are helping thousands of first-time buyers to achieve their home ownership dreams by offering the HomeBuy shared ownership scheme - which allow people to buy a stake in their home, and pay a subsidised rent on the unsold portion to the association. Buyers can increase their ownership stake over time.

Associations rely on a combination of government funding, private finance and the receipts from equity sales to make the scheme work.

But associations with charitable status may be forced to hand a large chunk of the proceeds from equity sales back to the Her Majesty's Revenue and Customs (HMRC) in the form of Corporation Tax - preventing them from investing in further affordable housing activity.

HMRC rules are unclear, but officials have recently argued that "first tranche" sales of equity by charitable housing associations are a trading activity, and therefore liable to Corporation Tax. If this interpretation is adopted across the board, tens of millions of pounds will be lost from the HomeBuy programme.

The Federation has called on the Government to introduce a clause into the Finance Bill 2007 exempting housing associations from Corporation Tax on all shared ownership activity.

Bob Wilson, head of finance policy at the National Housing Federation,
said:
"With the country in the grip of a critical affordable housing shortage, we need to make every penny of investment count. If the Government is investing in affordable housing, it makes no sense for housing associations to hand this funding back to the taxman in the form of Corporation Tax. The Treasury needs to prevent this money-go-round and exempt charitable associations from Corporation Tax on social housing shared ownership activity."

VAT ON REFURBISHMENT TO AFFORDABLE HOUSING There is currently a reduced VAT rate on the installation of some energy saving materials, such as solar panels. But other energy saving adaptations - such as the installation of good quality insulation or double-glazing - are charged the full rate of
17.5 per cent.

To tackle fuel poverty and reduce energy consumption, Federation believes housing associations should be charged a reduced VAT rate of 5 per cent on any work that results in an improvement to the energy efficiency based on a "SAP" assessment (Standard Assessment Procedure - the Government's preferred standard for home energy rating).

This would enable associations to better assist Government to promote greater energy efficiency. It would also help associations to cut tenants'
energy bills and tackle fuel poverty.

Housing associations already set a high standard for greener housing; a reduced VAT rate would act as a powerful incentive for them to do even more work to improve the energy efficiency of existing homes.

Bob Wilson said:
"There are currently VAT concessions on fitting homes with some energy saving materials. We say housing associations should benefit from a 5 per cent rate of VAT on any refurbishment that makes a home more energy efficient. It would really assist us in our efforts to provide greener homes. It would also help us to drive down heating bills and lift tenants out of fuel poverty."

ENDS

Press release issued: October 6, 2006