Plan to cut tax on social housing

The European commission is considering a tax change that the could save the UK's housing associations hundreds of millions of pounds each year, it emerged today.

Housing associations have campaigned for years for reduced VAT on the repair and maintenance of their homes. They point out that this would help them meet the government's drive to improve social housing, but also cut costs in the sector.

Until now the government has claimed it cannot cut VAT for repairs because of European rules.

But in a response to a select committee inquiry, the Office of the Deputy Prime Minister (ODPM) revealed that the commission has proposed to include social housing on its list of activities that can qualify for reduced VAT rates.

It suggested that if the commission goes ahead with the plan it will consider allowing lower VAT on social housing in the UK.

The announcement was buried in a response published yesterday to an inquiry by the select committee for the ODPM into the role of historic buildings in urban regeneration.

If the government went ahead with the move it would save some housing associations millions of pounds a year, according to Andy Rogers, the director of the social VAT team at the accountants KPMG.

"It would be very useful. The biggest housing associations face a VAT bill of between ?15m and ?20m," he said.

KPMG has devised a way of exempting housing associations from VAT on repairs to homes taken over from local authorities. But Mr Rogers pointed out that this currently did not help cut tax bills for repairs on traditional housing association homes.

The department appeared less willing to consider cutting VAT on the repairs to historic buildings, as the committee recommended.

Its response to the inquiry said: "We have seen no compelling evidence that the absence of a reduced VAT rate on repairs significantly hinders the maintenance of historic buildings."

It claimed that much of the benefit would go to well-off households making improvements to historic homes that were already in good condition.