THE European Union has issued a consultation document that could lead to VAT being charged on all new homes in the UK – a move that would see the average price of a new home increase by £48,000 from £238,000 to £286,000.
The consultation, which required replies to be lodged by January 4, 2013, proposes to harmonise rates across Europe.
Currently, the UK has an exemption which means that new homes and self-builds are zero-rated for VAT purposes.
Richard Jones, of the Residential Landlords Association, said: “The EU Commission is wanting to put an end to the UK’s right to zero-rate VAT on a wide range of items including new-build housing.
“Both owner occupiers and private landlords would be badly hit if this were to happen.
“The consultation launched by the Commission has the potential to cause catastrophic damage to the housing market in the UK and we hope any such moves will be firmly resisted by the UK Government.”
An increase of this size would clearly see more people being priced out of the UK housing market and cause serious issues for the building industry.
Around 130,000 homes were built in the UK last year which is low and any increase in prices would only exacerbate the current housing crisis.
John Stewart, of the Home Builders Federation, said: “In the midst of a housing crisis, with a desperately fragile UK housing market and historically low house-building rates, any threat to the zero rating of VAT on new-build homes would be catastrophic.
“It is vital that the Government joins with industry to combat any VAT imposition.”
Whilst it appears that the UK Government is minded to reject EU proposals, industry analysts highlight that the EU’s move to standardise VAT rates on new-build homes was always only ever a matter of time.
The consultation ran until last Friday.
Its conclusions would have to be approved by the UK Government to become law which in itself could spark an interesting debate in Parliament.