HM Treasury and HMRC have launched a consultation on the VAT treatment of land intended for the construction of new social housing. The consultation looks at the possible introduction of a new VAT zero rate for the sale of land intended for the construction of social housing.
The consultation was published on 23 June 2026 and responses are requested by 17 August 2026.
This is of particular interest to Housing Associations, Registered Providers, developers, landowners and others involved in the delivery of social housing. The government has acknowledged that Housing Associations, developers and other groups critical to the delivery of social housing have suggested that the VAT treatment of land could better support how social housing is delivered.
The consultation also notes that targeted changes to the existing zero rate of VAT for new homes have the potential to increase the speed at which new social homes are built.
Current VAT position and the “golden brick” issue
The VAT treatment of land and housing development is often a key factor in how social housing transactions are structured.
A sale of bare land is exempt from VAT, unless the seller has opted to tax the land. Where an option to tax applies, the sale is standard-rated. However, in certain circumstances, a Housing Association can disapply the seller’s option to tax, meaning VAT is not charged on the land sale.
That does not necessarily solve the issue. If the option to tax is disapplied, the sale becomes exempt rather than zero-rated. This distinction matters because an exempt supply means no VAT is charged to the purchaser, but it restricts the seller’s ability to recover VAT on associated costs.
A zero-rated supply is different. VAT is charged at 0%, but the supply remains taxable. This means that, subject to the normal rules, input tax recovery is preserved. In practical terms, zero-rating provides a better VAT outcome than exemption because the purchaser does not suffer VAT on the price, while the seller is still able to recover VAT on relevant costs.
This is one of the reasons why social housing transactions are often structured around “golden brick” arrangements. Rather than transferring land at the outset, the developer carries out initial construction works before completion takes place. The aim is to bring the transaction within the existing zero-rating rules for new homes, rather than relying on an exempt land sale or the disapplication of an option to tax.
Golden brick arrangements achieve the intended VAT result, but it also creates practical difficulties. Completion is delayed until the required stage of construction has been reached, additional legal and tax input is needed, and the developer has to retain the land for longer than is commercially necessary. There can also be uncertainty over whether sufficient works have been carried out to support the intended VAT treatment.
These issues are particularly difficult where schemes are linked to funding deadlines, grant conditions or wider delivery targets.
What is being proposed?
The government is consulting on the introduction of a new zero rate of VAT for the sale of land intended for the construction of social housing.
If introduced, this would reduce the need for some transactions to be structured around golden brick arrangements. It would allow VAT relief to apply earlier in the development process, making it easier for Housing Associations to acquire land before construction has started or before it has reached a particular stage.
The consultation focuses on the scope and administration of the proposed relief. The government has included a specific set of consultation questions and has asked respondents to answer those questions directly where possible. Respondents are not limited to those questions and can also provide wider comments on the policy design and potential impacts.
Why this matters for Housing Associations
The proposed relief would simplify the way land is acquired for social housing developments.
Although Housing Associations are able to disapply an option to tax in some circumstances, that results in an exempt supply, which creates input tax recovery issues for the seller. A targeted zero rate provides a better outcome by allowing VAT relief to apply while preserving input tax recovery.
This would reduce VAT-driven structuring, including reliance on golden brick arrangements, and allow transactions to proceed in a way that better reflects the practical needs of the scheme.
The detail will be important. In particular, the sector will need clarity on who can benefit from the relief, what evidence is required to show that land is intended for social housing, how mixed-use or mixed-tenure developments are treated, and what happens if the intended use of the land changes after acquisition.
What should Housing Associations do now?
Housing Associations should review the consultation and consider whether they have practical examples that can help inform the government’s response.
This includes examples where golden brick arrangements have delayed completion, added cost or complexity, affected funding arrangements, or made it harder to acquire land at the preferred point in the development process.
The government is seeking views from a wide range of stakeholders, including social housing providers, housing developers, landowners, constructors, tax agents and representative bodies.
Responses can be submitted using the online form, by email to [email protected], or by post to HM Treasury. VAT treatment of land intended for the construction of new social housing – GOV.UK
Our view
This is a welcome consultation for the social housing sector.
Golden brick arrangements are a familiar feature of many social housing development transactions, but they add complexity, cost and delay. A new zero rate for land intended for social housing would help simplify transactions, preserve input tax recovery where appropriate, and allow Housing Associations to take control of sites earlier in the development process.
Housing Associations should consider responding to the consultation to help ensure any new relief is practical, targeted and reflects the way social housing developments are delivered in practice.
If you would like to discuss the consultation or how the proposed relief could affect your development plans, please contact our VAT team.
