Question to the HM Treasury:

To ask His Majesty's Government what assessment they have made of the negative impact of charging VAT for renovations of buildings on brownfield sites compared with greenfield sites where building of homes is zero rated for VAT.

To stimulate the construction of new homes, the Government maintains a zero rate of VAT on new-build residential buildings. Additionally, residential renovations are subject to a reduced rate of VAT of five per cent if they meet certain conditions. These include conversions of buildings from one residential use to another, conversions from commercial to residential use, and the renovation of properties that have been empty for two or more years.

VAT is the UK’s second largest tax, forecast to raise £171 billion in 2024/25. Tax breaks reduce the revenue available for vital public services and must represent value for money for the taxpayer. Exceptions to the standard rate have always been limited and balanced against affordability considerations.

Introducing further construction-related VAT reliefs would come at a significant cost to the Exchequer. The Chancellor makes decisions on tax policy at fiscal events in the context of the overall public finances. In July 2024, the Government published an audit of public spending, which set out £22 billion of in-year pressures. These pressures were not limited to 2024/25, with the vast majority recurring in future years.