Stop Hammering Britain's Heritage Mr Osborne

18.5.12

SAVE Britain's Heritage has attacked the proposed abolition of zero-rated VAT relief for approved alterations to listed dwellings and other building types as 'poorly considered, nonsensical and potentially hugely damaging to the historic environment'.

'This change makes no sense' says SAVE Secretary, William Palin, 'Far from correcting an anomaly it serves only to accentuate the bias in the tax system against historic buildings and refurbishment in general. Many alterations to historic buildings are an essential part of keeping them alive - replacing aging or dangerous wiring, installing new plumbing, heating or adding a much needed extra bathroom. In discouraging this, the new VAT rules are clearly out of kilter with wider government policy, both on heritage, and sustainability.’

'SAVE has long argued that the current VAT arrangements which favour alterations over repair are not ideal. However, clearly the sensible option for correcting this would be to equalise the VAT at a low level - otherwise the Treasury is simply adding another deterrent to individuals and charities wishing to take on, rejuvenate and sustain listed dwellings and places of worship. If the current system is a headache for HMRC then surely what is needed is a consultation on how the system should be improved. Until a sensible solution is found, the zero-rating for alterations should be left in place.’

SAVE’s President, Marcus Binney, says ‘George Osborne is not just hammering Britain’s great cathedrals and stately homes, he is penalising thousands of ordinary homes which are in urgent need of improvement and repair. By abolishing VAT relief on listed buildings, the Chancellor is foisting new burdens on to house owners, small builders, housing associations, congregations and building preservation trusts – the foot soldiers in the never-ending slog to retain and enhance the character of cities towns and villages.’

‘The present crisis precipitated by the budget has all the signs of being cooked up by a few officials in HMRC who wanted to rid themselves of what they regarded as a contentious area of taxation - which consumes a disproportionate amount of time in enquiries and disputes. But even if this is true it doesn’t make the current regime ‘anomalous’ – it just underlines how badly the relief is needed. It seems that ministers have had cost and revenue as their only criteria and have had no regard for the dreadful repercussions of this change on almost everyone looking after, caring for or simply using an old building as part of daily life.’

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Withdrawal of VAT relief on approved alterations to listed buildings

Official SAVE response to HMRC consultation

SAVE Britain’s Heritage (SAVE) is an independent charity, registered no 269129, which for over 30 years has campaigned for threatened historic buildings, areas and designed landscapes across the United Kingdom.

SAVE has been described as the most influential conservation group established since the foundation of the Society for the Protection Ancient Buildings by William Morris over a century ago. SAVE was created in 1975 - European Architectural Heritage Year - by a group of journalists, historians, architects, and planners with the aim to bring to wider public attention the plight of endangered historic environment. Through press releases, lightening leaflets, reports, books and exhibitions, SAVE has championed the cause of decaying country houses, redundant churches and chapels, disused mills and warehouses, blighted streets and neighbourhoods, cottages and town halls, railway stations, hospitals, military buildings and asylums.

SAVE has published over 150 reports and mounted many campaigning exhibitions. The organisation has around 1000 paying Friends and for the last 18 years has published a Buildings at Risk catalogue listing buildings in need of rescue and repair. SAVE’s online database of Buildings at Risk is second only in size to that of English Heritage and remains the most comprehensive register of Grade II listed buildings in the UK. 

From the outset, SAVE has placed a special emphasis on the possibilities of alternative uses for historic buildings and, in a number of cases, it has prepared its own schemes for re-use of threatened buildings. This is particularly relevant when considering the impacts of the current proposed tax changes. SAVE has always maintained a pragmatic approach to the protection of the historic environment, understanding that sensitive change, adaptation and extension can all play a crucial role in the rescue and rehabilitation of threatened on neglected buildings.

On repeated occasions SAVE proposals have been instrumental in giving such buildings a renewed lease of life and, through its Building Preservation Trust arm the SAVE Trust, the charity has taken on and repaired a number of important and gravely threatened historic buildings.

SAVE is also active on the broader issues of preservation policy and has repeatedly emphasised the economic, social and cultural benefits of protecting and caring for the historic environment. The detailed consultation response submitted The Heritage Alliance quantifies many of these benefits, citing figures given by Visit Britain, English Heritage, HLF and others.

SAVE has long campaigned for a better and fairer taxation system in relation to listed buildings - advocating a policy which incentivises people to take on, care for and provide new uses for historic buildings. In 1984 SAVE published the lightning report Mr Lawson, you have damned our best hopes for Britain’s historic buildings in response to budget proposals to impose VAT on all work to existing buildings. This report, which sited examples of repair projects such as Hazells Hall, Bedfordshire; Railway Cottages, Derby and New Concordia Wharf in London, helped to secure a crucial concession from the Chancellor - the retention of zero rating approved alterations to listed buildings.

Summary of response

SAVE considers the proposed abolition of zero-rated VAT relief for approved alterations to listed dwellings and other building types to be poorly considered, and potentially hugely damaging to the historic environment.

Far from correcting an anomaly, the proposed changes would serve only to accentuate the unfair bias in the tax system against historic buildings and refurbishment in general. Many alterations to historic buildings are an essential part of keeping them alive - replacing aging or dangerous wiring, installing new plumbing and heating, adding a much needed extra bathroom or living room. In discouraging this, the new VAT rules are clearly out of kilter with wider government policy, not only on heritage, but also sustainability - which is at the heart of the new National Planning Policy Framework.

SAVE has long argued that the current VAT regime, which favours alterations over repair, is not ideal. However, clearly the sensible option for correcting this would be to equalise the VAT at a low level - otherwise the Treasury is simply adding another deterrent to individuals and charities wishing to take on, rejuvenate and sustain listed dwellings and places of worship. If the current system is an administrative headache for HMRC (para 46) then surely what is needed is a consultation on how the system should be improved. Until a sensible solution is found, the zero-rating for approved alterations should be left in place.

It is clear that the motivation for this change is not to make the current tax arrangements fairer but simply to reduce costs and raise revenue. The dreadful repercussions of this change on almost everyone looking after, caring for or simply using an old building as part of daily life, has not been properly considered.

Analysis of proposals and impacts

1.    ‘Perverse incentive’

SAVE believes these proposed changes reflect a fundamental failure on the part the Treasury to understand the realities of owning and maintaining listed buildings. No listed building can survive without change - and most changes are made in the interests of the long-term survival of that building - whether it is the installation of a new heating system, or the addition of a bathroom. There seems no evidence in the proposals that the role played by change in keeping a building alive has been taken into account - something that would have become abundantly clear had consultation taken place before the changes were proposed. In addition, the proposals fail to acknowledge the role played by listed building consent in controlling these changes and ensuring that they are sensitive and desirable.

2.    The reality of owning a listed building

Britain’s stock of listed buildings represents a precious and irreplaceable resource. Owning and looking after these buildings can be challenging. They require specialist care - and any work to the fabric is likely to be more costly than in an unlisted property. It is absolutely right that, under current arrangements, the tax system recognises this and offers relief. Without this, owners of listed buildings are in effect being penalised - an absurd situation given the acknowledged contribution made by listed buildings both to the environment and economy.

3.    Economic impact

Table 6 (Summary of impacts) states that the ‘This measure might lead to a small increase in the price of alterations to listed buildings’. Given generally high cost of any works to listed buildings it is hard to see how an increase of 20% could be considered small. Just replacing or updating the plumbing in a medium sized terraced house can easily cost well in excess of £10,000 - making the impact of these changes considerable.

4.    Left to rot - why rescue a wreck?

Over the last 35 years SAVE has acquired an in depth understanding of the problem of historic buildings in danger as a result of vacancy and neglect. This expertise has been developed through the building and management of a database of Buildings at Risk in England and Wales.

Unlike the English Heritage list which, with the exception of London, only includes Grade I and Grade II* structures, SAVE’s database features Grade II buildings - which represent the bulk of all listed buildings. Many of the buildings on SAVE’s list have been empty or partially empty for some time - hampered by location, condition or the unrealistic expectations of owners. It is obviously imperative that these vulnerable buildings are put back into use as quickly as possible, and it is the aim of our database, and our annual published catalogue, to attract private individuals, charitable trusts and developers with the required enthusiasm, determination and imagination to bring them back to life. Many of these projects are borderline in terms of viability and nearly all are ineligible for grant funding. Zero-rated VAT on alterations is therefore one of the few benefits offered to new owners. Even when the house already enjoys VAT at 5% because it has been empty for 2 year or more - the zero-rating provides a substantial incentive for taking the plunge and rescuing a wreck.

Since the recession, SAVE has seen the number of cases of buildings at risk rise dramatically, highlighting the need for the tax system to provide more, rather than fewer financial incentives for repair and alteration. We are deeply concerned that the proposed VAT changes will serve to further stigmatise listed buildings in the public consciousness as ‘hot potatoes’ and ‘money-pits’ which it is better and cheaper to demolish than rehabilitate.

5.    Approved alterations

Under the current system, zero-rating applies only to approved alterations. This obviously incentivises owners to seek the necessary permissions rather than carry out unauthorised works to listed buildings. If, as proposed, this incentive was removed through the loss of zero-rating for VAT, then there is the obvious danger that owners will risk carrying out unauthorised works, which may be damaging to the historic fabric of a listed building. As well as risking damage to heritage assets, a rise in reported unauthorised works will have an impact at council level on conservation officers and enforcement teams - increasing costs. SAVE feels that the failure to include this impact in the consultation document reflects a lack of understanding of how the current system works and a failure to consult those working on the heritage ‘front line’.

6.    Why not consult on alternatives?

It seems to SAVE that if the Treasury wanted to make the current VAT system more efficient, and reduce processing time and costs it should consult on how the present system could be improved, rather than simply scrapping zero-rating.

One simple solution would be to equalise VAT for alterations and repairs at 5%. The 5% level is already in place for residential conversions and for works to bring long term empty homes back into use - so it would be straightforward for HMRC to extend this. That would represent a genuine simplification of the tax rules - and correct the ‘perverse anomaly’ in a system which favours alterations over repairs. It would also help unlock thousands of stalled restoration projects, injecting millions into local economies, improving the environment and encouraging tourism. All to the benefit of the Exchequer.

If the intention was to prevent relief being given for extensions listed buildings then another solution would be to restrict zero-rated VAT to alterations within the existing footprint of the building. This would simplify the process and prevent perceived abuses of the system.

7.    Recommendations

It is clear to SAVE that the decision to remove zero rating for approved alterations to listed buildings has been taken purely on revenue grounds and has little or nothing to do with correcting an anomaly. A far more serious anomaly (and one which is completely out of step with the government’s agendas on localism and sustainability) is the perverse incentive to rebuild, or build from scratch rather than repair and rejuvenate. There are many ways of addressing the discrepancy in the tax system over alterations and repair (such as those suggested above) which would not create new burdens on those seeking to preserve and enhance the built heritage. SAVE firmly believes that any modest savings resulting from these changes will be outweighed by the serious, long term, environmental social and cultural costs.

Heritage Alliance Response