Social Housing VAT Budget Update - Consultation to Extend Zero Rating

Members may be aware that part of the UK Government's Budget 2025 included news of a forthcoming consultation on applying a zero rate of VAT to land sold for the development of new social housing. We expect this to be a welcome step, as it has the potential to remove the issue of social housing providers paying VAT on opted land (currently 20% of the land price, which is generally irrecoverable where the land is ultimately used for the exempt rental of residential properties). 

Social housing providers already have the option to disapply an option to tax on land. However, this has proved unpopular, as many sellers have incurred VAT costs on sites that they need to recover. Disapplication reverts the land to exempt status, whereas a move to zero rating would allow no VAT charge to the buyer while still enabling the seller to recover any related VAT incurred. 

Please see an extract from HMRC below: 

BUDGET 2025: VAT TREATMENT OF LAND INTENDED FOR SOCIAL HOUSING AND OTHER VAT REFORMS 

As you may be aware, as part of Budget 2025 the Chancellor of the Exchequer has today announced that the Government will shortly consult on extending the zero rate of VAT for the construction of new homes to include the sale of land intended for new social housing. This measure is intended to simplify and accelerate the delivery of social housing. 

The consultation is expected to take place in early 2026, and sector advisers RSM would welcome a conversation with any members who have an interest in this area. 

The consultation is expected to be held in early 2026 and sector advisors RSM would welcome a conversation with any members interested in this area.  

For further details, please contact SFHA Policy Lead, Eli Harji eharji@sfha.co.uk.