In 2026, several VAT developments are particularly relevant to the sector, including proposed reforms to the VAT treatment of land for social housing, continuing challenges around partial exemption, and ongoing uncertainty regarding building safety and remediation works.

Proposed VAT reform for social housing land

One of the most significant current developments is the Government's consultation on introducing a new zero rate of VAT for the sale of land intended for the construction of social housing. The consultation opened on 23 June 2026 and reflects concerns that existing VAT rules create barriers to housing delivery. 

Current position

Under existing rules, housing associations often rely on the "golden brick" structure, whereby a site is transferred only after construction has commenced, allowing the sale to qualify for zero-rating. This approach is widely used but creates complexity, delays and additional transaction costs. 

Proposed change

The Government is consulting on allowing land intended for social housing development to be zero-rated from the outset. The objective is to:

  • Reduce acquisition costs.
  • Remove transaction complexity.
  • Accelerate development programmes.
  • Support delivery of additional affordable housing. [gov.uk], [gov.uk], [vatupdate.com]

If implemented, this would be one of the most important VAT reforms affecting the social housing sector in many years.

Building safety and cladding remediation

Building safety remediation remains a major VAT concern.

HMRC issued updated guidance clarifying its position on VAT incurred on cladding remediation and other fire-safety works to residential buildings. The guidance generally confirms that remediation works undertaken after completion of construction are subject to standard-rate VAT unless they qualify as "snagging" directly linked to the original build contract. 

Why this matters

For many housing associations:

  • Remediation projects cost millions of pounds
  • Contractors charge VAT at 20%
  • Recovery of that VAT is often restricted because residential letting is an exempt activity

The sector has argued that this creates an additional financial burden on providers already funding building safety programmes.

Areas of ongoing dispute

Questions continue regarding:

  • Whether works qualify as snagging
  • The contractual relationship required to secure relief
  • Remediation commissioned long after construction
  • Projects involving replacement contractors

These issues remain a significant area of VAT risk and cost.

Strategic VAT planning in 2026

The sector is facing increasing financial pressure from:

  • Building safety expenditure
  • New development targets
  • Maintenance obligations
  • Regulatory requirements
  • Funding constraints

Against this backdrop, VAT efficiency has become a board-level issue.

Key areas currently being reviewed by many housing associations include:

  • Updating Partial Exemption Special Methods
  • Reviewing VAT group structures
  • Analysing development models
  • Assessing land acquisition strategies
  • Maximising recovery on regeneration projects
  • Managing VAT on fire-safety and remediation programmes

Conclusion

VAT continues to represent one of the largest irrecoverable costs borne by UK housing associations. While long-standing challenges around partial exemption and VAT recovery remain, 2026 has brought renewed focus to the sector through the Government's consultation on zero-rating land for social housing developments and HMRC's clarified stance on cladding remediation.

Evolving VAT policy means that housing associations should review their VAT strategies carefully. Proactive VAT planning can generate substantial savings and release funds for investment in new and existing affordable homes.

Given the current focus of the UK government on housing demand and the cost of living, this sector would benefit from a comprehensive VAT relief, which is within the gift of government.  

We have an experienced team of VAT professionals who work in partnership with clients to provide assurance and solutions.  Please do not hesitate to contact us if you would like to discuss any issues. 

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