Towards Net Zero: What tax tweaks do the BPF recommend to help the property sector hit its environmental goals?

With an ambitious target for net zero by 2050 the Government has set a challenge for the UK to take steps to reduce their carbon output.

A new report by the British Property Federation acknowledges that buildings account for around a quarter of the UK’s greenhouse gas emissions, and so the sector as a whole will play a key role in helping hit that net zero target.

With property being a UK wide sector, and something that is utilised by almost every business and industry, the report acknowledges that to achieve success common areas and themes must be targeted.

Tax has always been an area that provides significant incentives. As such, the BPF have highlighted potential tax changes that could help reach outcomes in the property sector to push to the net zero target.

The first tax based recommendation is to zero rate for VAT all residential repairs and maintenance, or at the very least zero rate energy efficiency items such as double glazing, insulation, etc. The BPF suggest going further and making all repairs and maintenance zero rated.

This would mean that costs are lower for homeowners, whilst providing the services does not affect the VAT recoverability of suppliers. This win win would make repairs and maintenance more attractive, meaning less wasted carbon emissions, with homes more rapidly brought up to full repair, and by zero rating energy efficient items and services homeowners would be encouraged to invest in their properties to lower their heating bills and emissions with the latest environmentally friendly technology.

The second tax based recommendation is a reform of the capital allowances and business rates systems. Capital allowances are a writing down allowance whereby an investor can write off a proportion of their spend every year. The BPF’s suggestion is to move to a repayable tax credit system as per R&D whereby a set percentage of expenditure on green items would be a straight tax credit. This would encourage businesses to focus expenditure on environmentally friendly additions to their property. The BPF are keen to highlight that business rates can act as a disincentive, as green investment can increase a property’s value – leading to an immediate increase in business rates. The BPF’s suggestion would tie business rates to energy efficiency, leading to reduced business rates for more efficient buildings, further increasing incentives to improve properties.

The BPF also suggest allowing REITs (Real Estate Investment Trusts) to invest in offsite renewables in order to increase the pool of funding for renewable energy generation infrastructure.

The report in full has many sensible suggestions which would help the property sector transition towards a more environmentally friendly future. As we get closer to the Government’s 2050 target it is vital that suggestions from industry experts in all sectors are put forward to tackle the complex task of reducing emissions and reaching our environmental goals.

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