More land for social housing development?

Background to the consultation

In November’s Budget, the government made a brief reference to a forthcoming consultation exploring amendments to VAT legislation to support the development of land for social housing. Although HMRC has not yet confirmed the precise scope of the consultation, it is widely anticipated that it may include the introduction of a new zero rate of VAT on the sale of bare land to registered providers of social housing.

If implemented, this would represent a meaningful shift in the current VAT treatment of land transactions and could remove long‑standing barriers faced by housing associations and developers.

The current VAT challenge

Under existing VAT rules, the sale of bare land is normally exempt from VAT. However, where a landowner has exercised an option to tax, VAT becomes chargeable at the standard rate. For housing associations, this often creates a problem, as VAT incurred on the purchase of land may be partially or wholly irrecoverable, depending on how the land will ultimately be used.

While it is technically possible for housing associations to request that vendors disapply the option to tax, this is frequently an unattractive option for landowners. In many cases, disapplying the option can result in VAT clawbacks or other adverse tax consequences for the seller. As a result, this approach often reduces the pool of landowners willing to sell land for social housing development.

Reliance on complex ‘Golden Brick’ structures

In practice, the sector has increasingly relied on complex ‘Golden Brick’ arrangements to mitigate irrecoverable VAT. These structures can enable zero rating to apply, but they are often time consuming and costly to negotiate and document. They can also be open to challenge by HMRC if not implemented correctly.

For both developers and social landlords, this complexity adds to the administrative burden, creates uncertainty, and can delay projects at a time when accelerating housing delivery is a national priority.

Why zero-rating bare land would be a game-changer

The introduction of a zero rate for the sale of bare land to registered providers of social housing could provide a much needed simplification. Applying zero rating at the point of purchase would remove the need for complex structuring and potentially eliminate irrecoverable VAT costs without the need to rely on the option to tax disapplication requests being agreed.

This change could:

• Increase the portfolio of land available to social landlords for new housing
• Reduce irrecoverable VAT costs for housing associations and developers
• Ease cash flow pressures by removing upfront VAT charges
• Reduce the administrative burden associated with acquiring opted land for social housing developments
• Provide greater certainty and speed in land transactions

Ultimately, this could support the delivery of more affordable and social housing by making land acquisition simpler and more commercially viable.

What happens next?

HMRC has not yet announced an exact launch date for the consultation, but it is expected to be released early in 2026. Stakeholders across the social housing sector will be watching closely, as the outcome could shape land acquisition strategies for years to come.