Golden Brick – is a new approach needed?

Adam Cutler, Director, VAT and Customs Duty Services
Golden Brick is a popular structure for acquiring land for development. Rather than acquire a bare plot of land or a completed building, the housing association acquires the site when the new building is under construction – after it has reached the ‘golden brick’ point. This is VAT-efficient for both the seller and the association.

However, the traditional structure of golden brick is becoming increasingly unworkable. Waiting until the new building is substantially under construction before the land can be sold causes significant cashflow issues for the developer, additional legal fees for both parties and a loss of control over the build during the crucial foundations stage.

While it may be possible, in principle, for the housing association to pay in advance of owning the land, this can affect grant draw down and availability of finance. We are finding Boards are increasingly reluctant to sanction this.

With more developments being land-led, the vendor will not normally be able to do the construction works required.

An alternative may be for a subsidiary to acquire the land and construct the building to this point. However, this comes with financing and SDLT issues. I also question whether our understanding of when ‘golden brick’ is achieved needs updating. Traditionally this has been accepted as one level of brick above the damp proof course.

However, this may not be the point at which many modern buildings would be seen as being ‘clearly under construction’. In particular, it does not fit well with modern methods of construction – if the walls of the building are currently off-site, have they been constructed yet? However, even if HMRC were to bring forward the date they accept a building is under construction, this only reduces, rather than removes, the above issues.

If legislation is not working as intended, it should be changed. Now that the UK has left the EU, VAT legislation can be amended much more quickly. Representative bodies have lobbied for a small change in the law to enable land sold to a RP/RSL to be zero-rated provided construction of new dwellings commences within ten years.

Significant new housing seems likely to be included in several party manifestos and I hope that this minor change in the law will be accepted as a way of enabling this.

To read Adam’s full articles on this topic, please see Social Housing Magazine ‘Social Housing - Comment - Golden brick – is it time for a rethink?’ and ‘Social Housing - Comment - Golden brick: could a legal tweak offer a pragmatic solution?’. This, and other VAT topics, were discussed in our VAT update webinar on Thursday 29 February 2024.

For further information, please contact Adam Cutler, or your usual Crowe contact.

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Adam Cutler
Adam Cutler
Director, VAT and Customs Duty Services