At present VAT of 20% is charged on all materials and labour employed to repair or upgrade all second-hand buildings, but no VAT is charged on the cost of new buildings.
The Scottish Government National Planning Framework 4 (NPF4) indicates a preference for reuse, adaptation and recycling in relation to existing buildings rather than demolition and new build, so it seems perverse that there is a disincentive to do so. It is important to encourage the re-use of old buildings, in order:
- to reuse and recycle as much existing material as possible
- to maximise the drive towards sustainability and zero emissions
- to minimise the emissions of carbon in demolition, and
- to reduce carbon use in manufacturing brand new materials and constructing them into a new building.
It is clear that VAT is a significant revenue stream for HM Treasury, so any reduction in the income produced will be unwelcome. The Scottish Government may be reluctant to have a grant scheme to mitigate VAT at a time when its budget is stretched.
However, it is the view of Dundee Civic Trust that environmental and social needs require as much encouragement as possible to reuse existing buildings. Although there is for example a UK wide grant scheme to offset VAT on repairs to churches, it is limited to those listed by Historic Environment Scotland, has an annual limit of £25,000 and is in operation only until 31 March 2026. This is clearly insufficient and the Trust`s view is that repairs to all existing buildings should be zero rated for VAT.
Policy Statement, April 2025