Autumn Budget 2026: VAT zero-rating of land sold to registered providers

Today the Chancellor announced that land which is sold to registered providers (RPs) will be zero-rated for VAT purposes. So, what does this mean, and why should we care?

The problem: VAT sensitivity

RPs are typically VAT sensitive: they cannot usually recover input VAT on supplies they receive because they usually make exempt supplies of the land and so it represents an absolute cost to them.

RPs have the power to disapply a seller’s option to tax to protect themselves against this irrecoverable VAT. But this is an unpopular approach with sellers, who will then incur irrecoverable VAT of their own: unless a seller has opted to tax their property (and makes a VAT standard rated supply) the seller cannot recover VAT on supplies of legal services, agents’ services or their acquisition of the land.

The old solution: golden brick

For decades, the solution had been golden brick. RPs would acquire land from developers once construction of a dwelling had reached a specified stage: ‘golden brick’. Once golden brick has been achieved, the supply of the freehold or long leasehold of the new dwelling under construction by the person constructing it is zero-rated. This allowed developers to recover their input VAT on costs without imposing a VAT cost on the RPs. The drawback was that someone had to fund these construction works. Since RPs’ funding is typically contingent on acquiring an interest in the land, it was generally the developer cash-flowing the construction works.

The new rules: zero-rating

Under the changes announced in the Budget, from 1 April 2027 the sale of land to an RP will be zero-rated. This will allow zero-rated disposals to RPs earlier, before construction works have taken place, and allow RPs to access their funding sooner. Unlike a ‘golden brick’ approach, developers will be relieved of the burden of funding the construction works, and there will be no need to incur monitoring costs to determine whether ‘golden brick’ has been reached.

In a welcome change from this summer’s HMRC consultation, the new rules seemingly will apply to all land, rather than being limited to disposals of bare land. Not only will this make the new rules more straightforward to administer, but it ensures that brownfield sites can be re-purposed, protecting more of our green spaces.

It is expected that the new rules (due to be circulated in early 2027) will identify RPs using existing definitions, and will specify the qualifying declaration, supporting records, responsibilities of the parties and consequences for inaccurate information or failure to achieve the intended qualifying use. It is possible that the declaration will be similar to the current RP disapplication certificates.

The end of golden brick?

No - the new rules apply only to disposals to RPs. Where the purchaser is not a qualifying RP but has a VAT sensitivity (for example some charities), there will still be a need for golden brick. Depending on how RPs are defined, some joint venture arrangements may also continue to adopt golden brick structures.

What happens now?

Until the new rules come into force on 1 April 2027, developers and RPs may consider including ‘accelerator’ clauses in their golden brick contracts, requiring the RP to acquire the property before golden brick once the new rules have come into force. 

The Budget announcement recognised that transactions involving apportionment, shared infrastructure, commercial units, changes in tenure and phased transfers will require particular attention. Where an accelerator clause is used, the development will potentially consist of a mix of golden brick phases and new rules zero-rated phases. In the absence of draft legislation, parts of the property on which services or other infrastructure haves been installed and which may not benefit from the new rules, may need to be dealt with as a separate supply. It may be preferable, for example, for roads under construction to be retained and adopted directly from the developer. Any accelerator clause will therefore require careful drafting and should build in flexibility as far as commercially possible.

A potential windfall: SDLT sub-sale relief

Under the old rules, it was not possible to achieve both golden brick VAT zero-rating and obtain SDLT sub-sale relief: the conditions for SDLT sub-sale relief require the buy-in and onward sale of the relevant land to happen simultaneously, with no lengthy delay whilst dwellings are constructed to golden brick. That clearly cannot happen if the developer is required to construct to a golden brick level before substantial performance of the contract of sale to the RP. 

Under the new rules, there will now be situations where both VAT zero-rating of land and SDLT sub-sale relief are available, providing an attractive potential saving that could help boost housing supply.