There was a debate on VAT on listed properties, in Westminster Hall, this week (4 March) led by the Conservative Craig Mackinlay, himself a Chartered Tax Adviser (CTA).
Craig Mackinlay is seeking the introduction of a zero rate of VAT on improvements made to listed buildings.
In opening remarks, Mackinlay said that listed properties ‘come in all shapes and sizes’ across the UK. In response to a question from Conservative MP John Howell on the listed places of worship grant scheme, which issues grants to cover the cost of VAT on repairs to listed buildings used as places of worship, Mackinlay noted that it has been used by 89 per cent of churches, some on more than one occasion. While this scheme works well, he said it was not as clean as a pure exemption.
Conservative Philip Dunne suggested VAT could be reduced five per cent on renewable energy initiatives involving listed properties. Mackinlay said the current treatment of VAT was ‘perverse’ when considered alongside the Government’s ambitions to be carbon neutral by 2050.
Plaid Cymru’s Hywel Williams pointed to an agreement reached at the 2008 ECOFIN (Economic and Financial Affairs Council) conference in Helsinki where European finance ministers agreed that VAT could be reduced to five per cent on labour-intensive industries. He noted that successive UK governments had ‘refused to take advantage of that opportunity’: France reduced VAT on restaurant meals; Italy reduced VAT on building renovation and repair; and Belgium reduced VAT on bicycle maintenance and repair. Williams even claimed that in Italy when VAT was reduced, receipts to the state increased massively as people moved out of the dark economy.
Mackinlay (pictured) went on to say that private listed property owners are protecting the vast majority of Britain’s built heritage ‘out of their own pocket’ but that the costs of repairs and renovations have risen sharply in recent years
Mackinlay pointed to the removal in 2012 of zero VAT rating for authorised alterations to listed properties. He added that the all-party parliamentary group on listed properties (which is currently being re-established) has evidence that the addition of VAT to repairs reduced the number of recorded works being carried out to protect and maintain listed properties by 30 per cent between 2012 and 2016. This gave him the impression that charging VAT on improvements amounted ‘not (to) a tax on the wealthy, but a tax on attempts to protect our cultural heritage’.
He said that figures from Historic England had shown a drop in the number of listed property applications to local councils and in the number of works being undertaken as a result of additional VAT costs.
Mackinlay’s plan would see a reduction in VAT from 20 per cent to zero following the Brexit implementation period. He also suggested that the Government could press ahead with a reduction to five per cent rate in next week’s Budget.
Mackinlay said that ‘painstakingly maintaining a national heritage asset should not be considered consumption but action in the national interest’. He said that the removal of VAT would not return money back to owners, but would simply mean that the Exchequer does not gain a little bit from the maintenance of the fabric of the nation. He also contrasted the current situation with the zero VAT rating on new builds since we became a member of the EU.
Works on listed buildings are carried out often by tradesmen who specialise in conservation work, so a reduction in VAT could increase the amount of activity carried out by a ‘small and declining sector’. He claimed that a VAT cut would ‘prime the pump’ and benefit the Treasury in the form of higher corporation tax and income tax receipts.
Lib Dem Wera Hobhouse said the climate emergency should lead to an increased urgency in upgrading listed buildings. She also coincidentally noted that, as older properties keep cooler, listed buildings could provide an answer to the issue of climate change and overheating.
Hobhouse called for VAT relief to be extended to include all renovations and improvements in listed properties (not just alterations), especially where they are focused on reducing carbon emissions and supporting the UK’s net zero ambitions.
She said that extending VAT relief would help the thousands of private owners of listed buildings in her Bath constituency and beyond to preserve important historical properties and in attracting tourists to the UK’s ‘wonderful’ built heritage.
SNP economic spokesperson Alison Thewliss reminded the debate that the SNP has argued for a reduction in VAT for energy improvement measures in homes. The party had argued for reductions in VAT for more modern buildings, including those affected by the cladding scandal following the Grenfell disaster. She voiced agreement with Mackinlay on the strong argument to include listed buildings in this. Thewliss pointed out that half of listed properties in this country are occupied by people at the very low end of the socioeconomic distribution, and that there of 1,840 derelict sites and buildings in Glasgow city, 126 of those are included in the listed buildings at risk register. She said that investment in high-deprivation areas made economic sense.
Labour’s Shadow Treasury Minister Anneliese Dodds said the treatment of construction work was one of the most complicated areas of VAT law. She said there was a lot of confusion that in turn produces higher transaction costs and issues for people interested in trying to repair their homes.
Dodds voiced concern over the lack of a level playing field between new build and existing listed buildings. She said that Mackinlay’s call for reducing VAT could be an incentive for additional repair work, but that a better evidence base was needed to evaluate whether tax reliefs met their objectives. She accepted the additional costs required to apply for the grant scheme mentioned earlier, such as employing an accountant to help claim tax reliefs.
Closing the debate, Tax Minister Jesse Norman said listed buildings are an integral part of British life and culture and enriched the country’s history.
He said the Government introduced measures to streamline the listed buildings consent regime in 2013. These measures included removing the need for specific applications for minor works to listed buildings and giving local authorities the power to grant a general consent.
Norman added that previously, approved alterations to listed buildings were zero-rated when used for residential use or by a charity. But the majority of work carried out under that relief was for extension purposes rather than for maintenance, and the relief did not deliver the original point and purpose of the legislation. Hobhouse intervened to suggest the Government could strengthen the definition of the purpose of the VAT relief, rather than scrapping it for everybody.
Norman said that introducing VAT relief for the repair and maintenance of all buildings would cost the Exchequer around £4 billion a year. He said the government did not have an estimate for listed buildings, but, as a figure of 450,000 was pointed out during the debate, introducing a relief would be very expensive and therefore ‘a constraint on what we can do’.
He suggested that the establishment of a fund to support investment in listed buildings may be a more appropriate approach and said that, at this time, the Government has no plans to change the VAT treatment of renovations or repairs.
The full session can be found here.
Photo courtesy of UK Parliament