David Kirby outlines a proposal to incentivise residential retrofits using the stamp duty or Land Transaction Tax (LTT) system.
A key objective for the Chartered Institute of Building (CIOB) is increasing the sustainability and quality of the built environment, which includes improving the existing housing stock as well as raising standards for new builds.
The number of residential retrofits in Wales and across the UK remains stubbornly below target levels and we have been looking at ways to incentivise more. One option would be for the UK Government to remove VAT from retrofit and repair, maintenance, and improvement (RMI) works would be one solution, but our proposal has the benefit of working with Welsh Government’s legislative competence without compromising the LTT revenue stream.
While Wales’s social housing sector has its Optimised Retrofit Programme, learnings and success from this are unlikely to be implemented in the private housing sector any time soon. Some 16 per cent of Welsh households are privately rented, and these are statistically the least energy efficient properties in Wales, though no specific retrofit scheme for the private sector exists.
Household heating accounts for 21 per cent of Wales’s emissions, according to Welsh Government statistics, so individual incentivisation to undertake retrofit is desperately needed.
UK Government statistics show that the Boiler Upgrade Scheme (BUS) only provided funding for 6,271 heat pump installations between May and December 2022, well below the five-year target of 90,000. A recent poll conducted as part of CIOB research showed that only 30 per cent of respondents had even heard of this scheme. As such, our proposal to defer stamp duty on property sales to increase retrofitting identifies one avenue through which an additional stream of retrofit can be created: investors who buy a house with the aim of refurbishing and flipping it can be tapped to achieve an uptick in residential retrofits.
The proposal is to defer LTT – in Wales’s case – liability on properties that have been purchased by such investors. Once the enhanced property has been resold, the stamp duty liability is paid, so there is no loss of this tax for Welsh Government. The crux of the proposal is to encourage investors to fix up older, less energy efficient stock for resale, thereby creating a ‘green flipping’ business model, providing an additional incentive to retrofit and increasing the overall number of residential retrofits. To defer the LTT, investors would need retrofitting measures carried out and verified by qualified professionals and would be required to sell the property once the work is complete. They would not be able to live in it themselves or rent it out.
This proposal is not a silver bullet, and it would have to work alongside other schemes, such as the National Empty Homes Grant Scheme (NEHGS), to encourage green investment in the market. In quarter four of 2022, the average property price in Wales was £249,076, according to Principality Building Society. Assuming this falls into the standard rate of LTT, a deferral would mean a saving for the buyer of £1,444.56. When this saving is coupled with the maximum amount available on the NEHGS of £25,000, there could be over £26,000 to spend on retrofitting a property and bringing it up to a safe and habitable standard.
We have already seen how a stamp duty and LTT holiday boosted the housing market across the UK during the Covid-19 pandemic. In the face of the current cost of living crisis, and with interest and mortgage rates across the UK at years-long highs, this cost saving could well be the difference between buying or not buying a property for many.
The benefits of this proposal are numerous: an LTT deferral could encourage more investment in the market, providing a much needed boost to Wales’s housing sector. It could also provide a stream of privately funded retrofit, and when coupled with the NEHGS, it could bring empty homes that are often overlooked by buyers back to the market for sale or for rent in a safe and habitable condition with low-carbon heating systems.
This proposal isn’t the sole answer to bringing the Welsh housing stock up to scratch, but at a time when energy bills are unaffordable for many households and the clock is ticking on carbon reduction commitments, it could certainly be a step in the right direction.
David Kirby is policy and public affairs officer for Wales at the Chartered Institute of Building