Government abolishes VAT on property upgrades

The government will cut VAT on the likes of heat pumps, solar panels and insulation, signalling that the authorities are looking to do more to steer the country away from using gas.

The Spring Statement also brought a cut to fuel duty, while the National Insurance threshold has been increased.

Chancellor Rishi Sunak said in parliament: “As energy costs rise, we know that energy efficiency will make a big difference to bills. But if homeowners want to install energy-saving materials, at the moment only some items qualify for a five per cent VAT relief and there are complex rules about who is eligible.

“The relief used to be more generous but from 2019 the European Court of Justice required us to restrict its eligibility. But thanks to Brexit we’re no longer constrained by EU law so I can announce that for the next five years homeowners having materials like heat pumps, solar panels or insulation installed will no longer pay five per cent VAT, they will pay zero.”

The change will take effect from April 2022.

The government previously moved to ban gas boilers from new builds in 2025.

Meanwhile landlords have been put on the clock to improve their properties, as EPC ratings will need to reach a level of C for new tenancies by 2025 or 2026, and for existing tenancies by 2028.

This move towards insulation and clean energy will help the government meet its green commitments, as well as end any reliance on Russia for the country’s energy.

Guy Gittins, chief executive of Chestertons, says: “The Chancellor’s decision to remove VAT for energy-saving equipment presents a major relief; particularly for buy-to-let landlords who are required to upgrade their portfolio to meet net-zero targets.

“Bearing in mind rising energy costs, we expect the VAT cut to further boost homeowners’ interest to implement eco-friendly energy solutions in their property.”

Ben Beadle, chief executive of the National Residential Landlords Association, said: “We welcome the decision to scrap VAT on energy efficiency measures. However, it remains disappointing that the government has again failed to explain what will be required of the rental sector when it comes to energy improvements.  The sector needs clarity as a matter of urgency.”

No changes to Universal Credit or benefits were made, which has disappointed campaigners, who called for an increase in line with inflation, which is now over 6%.

Beadle added: “More broadly, as renters, along with all others, face a cost-of-living crisis, the Chancellor should have reversed his decision to freeze housing benefit rates. Without this, those relying on the benefit will find it increasingly difficult to afford their rents.”

Gary Wright, co-CEO of payment technology firm flatfair, said: “Despite inflation hitting above six percent this morning, there is nothing in the Spring Statement to ease the impact of the cost of living crisis on Generation Rent, who are the hardest hit by price rises across the board.”

The government also went ahead with the expected fuel duty cut of 5p per litre.

This will be in place for one year and is designed to ease the pain of rising petrol prices.

Rishi Sunak also upped the National Insurance threshold by £3,000 to £12,500, saving people £330 a year, which he claimed was the “largest ever” tax cut.

The Institute for Fiscal Studies indicated that this was designed to compensate the 70% of workers set to be hit by a 1.25% hike in national insurance contributions (NICs) kicking in next week.

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