UK government consults on the VAT treatment of land intended for social housing

On 23 June 2026, as part of its Tax Update, HM Treasury and HMRC published a consultation on the VAT treatment of land intended for the construction of new social housing. The consultation proposes to introduce zero-rating at the point of the bare land sale in specific circumstances, earlier in the development process than is currently possible. 

A consultation in this area was first announced as part of Autumn Budget 2025 where the UK government said that it was considering changing the VAT rules to introduce zero-rating at an earlier stage of development for the construction of new social housing. The government says that this is part of its agenda to deliver a target of an extra 1.5 million new homes over the course of the current Parliament.

Policy proposal

The consultation proposes that the supply of bare land to a registered provider of social housing can be zero-rated for VAT where that land is intended to be used for social housing. The proposed definition of "relevant housing association" (the statutory term for registered providers of social housing) mirrors existing definitions in the Value Added Tax Act 1994 and the consultation sets out a possible certification procedure to be implemented to obtain zero-rating. This would be similar to the certification processes that already exist, such as where a supply is zero-rated due to intended use for relevant residential purposes.

'Golden brick' structuring

This is particularly relevant for forward funding arrangements. In these arrangements, a landowner/developer will acquire land, obtain planning permission and then sell it to a third-party purchaser while continuing to act as developer for that purchaser. By structuring in this way, as opposed to a sale at practical completion, the landowner receives its return earlier and the buyer funds the development. The buyer obtains early control over the site and, in the context of social housing, can access grant monies earlier.

Current UK VAT law provides that the supply of bare land is exempt from VAT unless the supplier has exercised an option to tax over that land, in which case it is standard-rated. Where an exempt supply of land is made, the supplier is unable to obtain input tax recovery on supplies that it has received that are directly attributable to that supply of land. If a seller of land has incurred VAT on its acquisition, it will usually seek to ensure it has an onward VATable supply of the land so that it can recover that VAT initially charged. If selling bare land, it may opt to tax and charge VAT.

However, in the context of housing held to let on a short-term basis, including social housing, where the purchaser is the party who will ultimately let the housing, the purchaser will not be able to recover such VAT due to the exempt nature of such letting. It is also possible in certain scenarios for a registered provider to give notice to disapply such an option to tax.

Therefore, generally, where new-build social housing is going to be constructed on the land and VAT has been incurred in acquiring the land or on professional fees in relation to the land, the parties will often look to structure the sale so that it is zero-rated by virtue of the supplier being "a person constructing a building designed as a dwelling or a number of dwellings". Typically, to be "a person constructing", the development must have reached the first building operation above foundation level. This is referred to as "golden brick" on the basis that in the past such building operation was the laying of the first brick. This structuring means that the property is not sold as bare land, and instead the seller has the burden of commencing the development before the land can be sold. Where the seller also acts as developer after the land is sold, it adds complexity to the contractual documents.

It can also cause additional funding and cash flow issues for both the seller and the buyer. The seller will often require a larger deposit on exchange of contracts to help manage its cash flow before the land transfer completes. A registered provider buyer may wish to utilise grant funding to pay the deposit but cannot do so because, in order to obtain grant funding from entities such as Homes England, the buyer must have title to the land. Stamp Duty Land Tax costs are also increased as, at a minimum, the buyer is required to pay Stamp Duty Land Tax on the value attributed to the land and the buildings developed to golden brick.

Impact of proposals

If the proposals from the consultation are enacted, this is likely to have a positive impact for all those involved in the supply chain of social housing. Registered providers will be able to bring forward the acquisition of development sites and not need to engage in time-consuming and costly structuring arrangements. This should speed up the delivery of social housing.

Currently, developers of large sites often speed up delivery of schemes by completing transactions in tranches to ensure that transfers occur as soon as golden brick is reached on a particular building. The proposed new legislation in this area is likely to negate the need for these arrangements. Care will need to be taken when completing and accepting any certificate required by the regime and the final details of any new legislation will need to be reviewed in this respect.

Next steps

The consultation closes on 18 August 2026, after which the government will publish a formal response setting out the next steps. If the government decides to proceed with the proposals, it is likely that HMRC will subsequently publish a technical consultation on draft legislation. The timeline is therefore subject to the outcome of the consultation process, the feedback received on the workability of the proposals, and future fiscal events. Given its stated aim of securing an increase in building new houses in this Parliament, the government is likely to want to press ahead with any reforms quickly.

Osborne Clarke comment

This is a fast-changing area of law and likely to have a real-world impact on current transactions, especially where contracts are exchanged conditionally on reaching golden brick. It may now be appropriate for relevant parties to review those arrangements and ensure that the point of supply can be brought forward, if desired, to reflect any future change of law.

It is notable that the current proposal is that only bare land would be subject to early zero-rating. Any partly developed buildings at the point of any change in law would, on the current proposals, still need to reach golden brick before a zero-rated supply can be made. We wait to see if this changes following the consultation.