The Chancellor has included in the Finance Bill the end of zero VAT on alternations to Listed Buildings from October 2012.

Before 1984 work on buildings was zero rated.  The Government then introduced VAT at the standard rate for all but exempted listed buildings and scheduled ancient monuments.  However, following a case brought against the UK in the European Court even this was curtailed and in the 1989 Finance Act zero rating only applied to work on historic buildings used for residential or charitable purposes.  As the legislation was gradually amended and it narrowed the zero rated work down to alterations to a listed building.

The result was that careful restoration using like for like materials, often resulting in significantly greater cost, incurred VAT whilst alterations, which needed listed building consent, were zero rated.  For instance hard wood windows made as an exact copy of the original would incur VAT whereas, provided listed building consent were granted, double glazed UPVC windows would potentially be zero rated.  The logic was flawed and despite much lobbying of ministers this anomaly has remained for the past twenty years or so.

One hard fought concession was eventually gained for places of worship so that tax paid on the repair and maintenance of listed places of worship could be reclaimed.

To date, put simply, owners of a listed building who carry out sensitive repairs which have not require listed building consent had to pay VAT.  Those who looked to “alter the character of the building” have not.

It is this anomaly that the Chancellor has set out to put right in the Finance Bill that is now before Parliament.  However, the proposed change to the legislation is likely to create new anomalies.  There are three categories of listed building that appear to have been caught in a new “trap”.  Firstly, there is the question of VAT having to be paid on the repairs and alterations to listed churches.  Secondly there are the small charities; set up to rescue local buildings, where it is only as a result of fund raising efforts these buildings can be restored.  Finally there are those restorations projects which receive grant aid, either from a local authority or English Heritage.  In the case of the first two examples this would see 20% of all fund raising going in tax.  In the case of grants, which are seldom given for more than 40% of the cost of the project, there will be a 20% VAT liability.

Before the Finance Bill is passed there is an opportunity to remove the ongoing anomalies surrounding listed buildings and VAT.  Charities, places of worship and work that is being grant aided by English Heritage or local authorities should be allowed to reclaim the VAT.  Without such assistance an increasing number of historic houses which are such an important part not just of this country’s built heritage but source of income from tourism will fall into disrepair.

10th April, 2012.