• Councils are liable to pay VAT on the costs associated with servicing a site to sell plots to private homebuilders. However, HMRC has given an ‘in-principle’ view that the development of infrastructure to create serviced plots under the Right to Build can be treated as ‘non-business’ activity, so councils should be able to recover any VAT incurred
  • Landowners and enabling developers who create serviced building plots currently need to construct the foundations of the homes that are planned (up to the so-called ‘Golden Brick’ stage), otherwise they will have to pass on VAT costs to private homebuilders
  • Private homebuilders can recover VAT costs for building materials and don’t pay VAT on the construction costs of the home when they work with an enabling developer or sub-contractor


The creation and sale of serviced building plots raises a number of specific taxation issues.

The application of Value Added Tax (VAT) and Stamp Duty Land Tax (SDLT) is complex and varies depending on who brings forward the land and who builds the homes. There are presently a number of areas of uncertainty, and councils and the sector are currently engaging with Government to seek further clarification.


When purchasing any form of property, new or old, SDLT is a recognised UK tax. Residential land and property costing up to £125,000 incurs no SDLT. If residential land and property costs more than this, SDLT is payable as follows: –

  • 2 per cent for values between £125,001 and £250,000
  • 5 per cent for values between £250,001 and £925,000
  • 10 per cent for values between £925,001 and £1.5m
  • 12 per cent for values of more than £1.5m

SDLT on non-residential land and property is payable as follows: –

  • 0 per cent for values up to £150,000
  • 1 per cent for values between £150,001 and £250,000
  • 3 per cent for values between £250,001 and £500,000
  • 4 per cent for values of more than £500,000

SDLT no longer applies in Scotland. Instead purchasers pay Land and Buildings Transaction Tax when they buy a property.

SDLT can be confined only to the value of a plot of land as long as there is a distinction between the party selling the plot, and the party building the house.

So, if a private homebuilder buys a plot from a landowner/enabling developer and then has a house built for them (for example, by a builder, custom build developer or package company who is unconnected with the plot purchase) then the lower SDLT charge can result in a significant cost saving. The grey area is when the landowner and the party that builds the home for the private homebuilder are the same (or are connected).


The construction of new homes is ‘zero rated’ and housebuilders therefore do not have to charge VAT on the homes they sell. This also applies to enabling developers when they build homes for private homebuilders.

VAT on the cost of servicing a building plot (roads, drains, foundations etc.) cannot be reclaimed by the landowner/enabling developer, unless they also commence the construction of the house (or they charge VAT to the private homebuilder). One way around this is the ‘Golden Brick’ approach (see boxed text below).

Councils have different VAT constraints.

Private homebuilders can reclaim the VAT on the building materials purchased to construct their home and don’t pay VAT on the construction costs when they work with an enabling developer or sub-contractor.


This is one of many Briefing Notes that explain resourcing, planning, land, finance, demand, marketing, consumer support and various technical issues. To see the full range of guidance click here.


For the purposes of this Toolkit we have made the following definitions:

  • ‘self and custom built homes’ are properties commissioned by people from a builder, contractor or package company (this is known as ‘custom build’ housing). When people physically build themselves, sometimes with help from sub-contractors, this is known as ‘self build’ housing. We call all these people ‘private homebuilders’.
  • ‘serviced building plots’ are shovel-ready parcels of land with planning permission, laid out and ready for construction with access and utilities/services provided to the plot boundary. Some private homebuilders just purchase a plot; others opt for a ‘shell’ home (that they then finish off), or they select from an extensive menu of options offered by developers/builders.
  • ‘group projects’ mean homes built by private homebuilders who work as a collective.

Statutory definitions are provided in section 9 of the Housing and Planning Act 2016 section 9  which amends the Self-build and Custom Housebuilding Act 2015.


This Briefing Note will be revised when the Regulations to support the commencement of the Self-build and Custom Housebuilding Act 2015 and the Government’s Right to Build policy are finalised.


Laying just one brick above foundation level (the ‘Golden Brick’) qualifies as being part of the construction.

Although the term ‘Golden Brick’ has no legislative definition, HMRC Notice 708 (paragraph 4.7.4) states that enabling developers may zero rate land, provided a building “is clearly under construction”. This means that as long as a builder or enabling developer constructs the foundation to the point where the first brick is laid above foundation level (the golden brick), they can then zero rate the sale of the plot.

It also means that any VAT incurred by the landowner or enabler when servicing the plot can be reclaimed.

This can generate a significant VAT saving for the private homebuilder, but it does mean that the plot purchase price will be more (as foundations and slab have to be constructed), and this can sometimes push up SDLT.

This is the same method used by housing associations when buying new affordable housing units from builders and enables them to avoid paying VAT on the purchase of the units.



Some councils have asked if VAT is chargeable when they create serviced building plots for sale, and how much VAT they can recover, particularly on larger sites. Councils have also raised this issue with HMRC because there is a grey area about how the taxation rules are applied in these circumstances.

Given that the provision of serviced plots is not currently a statutory function (which could change once the Right to Build is implemented by the Government) councils are currently liable to pay VAT on work associated with servicing a site. Councils must also currently treat the sale of building plots in the same way as private landowners/enabling developers.

Councils enjoy a unique VAT concession that allows them to recover ‘input’ VAT incurred on supplies that support ‘exempt activities’, as long as this ‘exempt input VAT’ is less than 5 per cent of the total input VAT that the council incurs in a year. The general rule (also known as the ‘test of insignificance’) is that where this 5 per cent threshold is exceeded the council must repay all ‘exempt input VAT’ within the same financial year, unless the exempt input VAT over a seven year period has averaged less than 5 per cent.‘Input VAT’ means the tax added to the price when goods or services that are liable to VAT are purchased. In the case of councils, ‘exempt activities’ include services such as adult education, leasing or selling property, charging crematoria or burial fees and renting out sports facilities. It also includes the creation of serviced building plots.

The above rule means that if a council incurs VAT when creating serviced plots it can recover this VAT provided the 5 per cent threshold is not triggered.

The implication is that councils will be able to bring forward small scale serviced plots as long as the amount recovered doesn’t breach the 5 per cent threshold (when added to other VAT recovered in any one year).For example, if a council’s year on year threshold is about £150,000 to £200,000, and exempt activities take up about £80,000 to £100,000 of this, it will leave about £70,000 to £100,000 of ‘headroom’ each year to create serviced building plots. If sites are larger and more plots are serviced then there is a risk that the threshold could be breached.



Cherwell District Council will be selling plots at its 1,900 home Graven Hill site with the foundations, drainage, substructure walls, ground floor slab and utility connections already in place. In each case the ‘slab’ will be constructed to match the private homebuilder’s chosen home design. This is termed a ‘Golden Brick’ sale. The council has adopted this approach to ensure the sale of plots is zero-rated

Serviced plots as ‘non-business’ activity

HMRC has considered the rules and, although no formal guidance has been issued, it is understood that it has taken the ‘in-principle’ view that the creation of serviced building plots for private homebuilding by councils under the Right to Build is a ‘non-business’ activity. (It should be pointed out that HMRC has not confirmed this view yet in any issued guidance, and it could adjust its view if further details or issues emerge).

HMRC’s ‘in-principle’ view was confirmed in discussions with the Chartered Institute of Public Finance and Accountancy (CIPFA) VAT Committee on 3 July 2014 and minuted accordingly. If this rule is applied it enables councils to recover the VAT incurred under Section 33 of the VAT Act 1994 and this will therefore not count towards their 5 per cent minimum threshold exemption.

Councils considering the preparation and sale of serviced building plots should always discuss the VAT implications with their internal tax advisors before embarking on any initiative.

Selling serviced plots

Under current HMRC rules the sale of a ‘plot of land within a serviced site’, where the owner has installed the utilities (eg. water, power, sewerage etc.), is considered to be a single exempt supply of land. This means that VAT incurred on any servicing costs cannot be recovered if the council’s 5 per cent minimum threshold is breached.

If a council is not going to breach the 5 per cent threshold it can sell the plots without charging any VAT.

Councils that are likely to breach their VAT threshold have two options open to them: –

  • They can charge VAT on the sale of the plots or start construction of the homes and sell plots at ‘Golden Brick’. This is the ‘safe’ option, and it will allow the council to recover the tax it has incurred on any servicing works, but it also means the plots will be more expensive for the purchasers
  • They can treat the sale as a ‘non-business’ activity. This means they would be able to recover the VAT. The risk with this approach is that HMRC could in the future adjust its current ‘in principle’ view

Top Tip

VAT issues for councils are complex

Be aware of the VAT implications for councils when considering the creation and sale of serviced building plots – discuss the issues with internal tax advisors before embarking on any initiative


The application of VAT is more complicated for landowners and enabling developers.

Servicing costs on plots

Infrastructure and utilities servicing costs incurred by landowners and enabling developers when creating serviced building plots are subject to VAT.

Selling serviced plots

The sale of serviced plots is an exempt supply, so VAT incurred on costs cannot be recovered. However to recover VAT on related costs the landowner/enabling developer may opt to charge the private homebuilder VAT.

This contrasts with the sale of completed homes by housebuilders, which are zero-rated for VAT purposes. This can affect the viability of a development and increase costs for private homebuilders.

To reduce costs, help with enabling developer cash flow and ensure the private homebuilder has flexibility over the home they they want to build, most enabling developers look to sell serviced plots to private homebuilders as soon as they have agreed their home design. This enables them to pass on the savings to the private homebuilder.

If they are required to provide foundations and a slab (to, for example, meet with the Golden Brick requirements) this can increase the private homebuilders costs as the developer will have to finance the work, and charge a profit. These additional costs could also trigger a higher SDLT charge.

Many enabling developers have opted for the ‘Golden Brick’ approach, as this ensures they can recover the VAT on their servicing works. It also reduces the costs for the buyer.

With the Golden Brick model the serviced plot is formally sold once the foundations are in place. Although this is a workable temporary solution for enabling developers and can be applied to fairly standard house designs and construction methods it has some significant drawbacks for private homebuilding, including: –

  • Reduced flexibility – although some enabling developers are using traditional brick and block construction methods, many are increasingly adopting advanced housing manufacturing/modern methods of construction (for example SIP systems and modular construction). Significant investment may be required if they want to use the ‘Golden Brick’ approach as their projects often don’t use conventional bricks. It also has implications for the private homebuilder who may want to use another builder or enabling developer to build their home on a serviced plot. Buying plots with foundations in place can, for example, be particularly challenging when private homebuilders order homes from foreign suppliers (which many are increasingly doing) and when they engage with warranty providers
  • SDLT implications – land value is classified by the Land Registry as being at the time of legal sale, which would be ‘Golden Brick’. Therefore the cost of foundations and any other works (typically up to the damp proof course) become part of the serviced plot price. This could push up the price of the plot and then trigger a higher SDLT charge
  • Mortgage issues – private homebuilders often need a mortgage, but this will be conditional until the work reaches ‘Golden Brick’ stage. This means the enabling developer will have to be ‘the client’ for the foundations, and they will then normally want to charge finance costs and a profit on this work. Any deposit for the plot (typically 10 per cent) will have to be funded from the private homebuilder’s own resources, and this could put private homebuilding out of reach for some people. It also increases administrative costs to engage with mortgage providers, their valuers and lawyers
  • CIL exemption issues – there could be implications for the Community Infrastructure Levy exemption if the work on the foundations begins before the plot has been acquired by the private homebuilder (to secure the exemption the homebuilder needs to apply to the council before any work begins)

Top Tip

VAT issues for enabling developers

The current taxation issues are complex. Taxation issues can affect a project’s viability, and the way plots are ‘packaged’ for sale


Purchasing a plot

When a private homebuilder buys a plot they will need to pay SDLT for the land based on the value as classified by the Land Registry at the time of legal sale. They may also be required to pay VAT levied by the landowner or enabling developer.

On average private homebuilders reclaim about £15,000 of VAT on their projects
Individual private homebuilders can apply for a VAT refund on qualifying building materials and services if they are building a new home, converting a property into a home, building a non-profit communal residence (for example a hospice) or building a property for a charity.

Private homebuilders who commission builders or enabling developers to build their home should not pay VAT for the construction of the home as this work is zero rated. Similarly private homebuilders that manage sub-contractors should not pay VAT on their services. Suppliers charging for labour only should not levy VAT.

The provision of services to connect the home to the off-plot services (for example water or gas mains) are also normally zero rated if this is done during the course of construction of a new home. VAT paid on professional services such as architect fees cannot be reclaimed. 

Where private homebuilders buy materials, they will have to pay VAT. However, this can be reclaimed (on qualifying materials) within three months of formal completion under the special VAT scheme for DIY builders (note that VAT cannot be reclaimed on some goods, such as white goods and carpets).

To recover the VAT private homebuilders complete the HMRC’s VAT431NB Form. In the National Custom and Self Build Association’s experience the average reclaim is about £15,000.

Unlike volume housebuilders, and all VAT registered businesses, who are able to recover VAT on a regular basis, private homebuilders can only submit one claim.

Where a private homebuilder has been wrongly charged VAT, HMRC will not make a repayment. In this situation the private homebuilder will need to resolve this directly with the supplier concerned.

Top Tip

VAT issues for private homebuilders

Private homebuilders have three months from the completion of their project to submit their one and only VAT Reclaim, and many fail to do so within the time limit. For many homebuilders VAT recovery can have a big impact on the viability of their project


The Acre – Cumnor Hill, Oxfordshire

Serviced Plots at Penkhull, Stoke-On-Trent

56-64 Blenheim Grove, London

Graven Hill, Bicester


The NaCSBA Research & Development Programme is funded by the Nationwide Foundation and aims to promote the self-build and custom build sector as an affordable route into housing for a greater number of people in the UK.

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