The EU it seems is flying a kite to see how it can help harmonise tax across the region by getting rid of the zero VAT rating for new houses.

This, says the Express, could mean slapping the full 20% on new-build houses increasing the average price up by some £48,000.

The way to keep the zero rating would be to ensure that all new properties met stringent environmental requirements. That of course will please the green lobby but could make houses much more expensive anyway.

But of course the UK government does have the veto on this proposal and it would be extremely surprising if they ever introduced this into UK law ….. unless they were forced to.

If implemented in full it would of course throw the whole UK housing market into disarray.

VAT is payable on sales of new homes in some EU countries at differing rates (in Spain it is 4% at the moment for example). And, as the EU likes to harmonise everything, then this tax issue would always inevitably come under the microscope, it was only a matter of time.

We in the UK would probably like it to be set at zero across the EU but, as ever with EU negotiations, compromises will have to be made. Just like all the other ‘red lines’ we have surrendered we may well see a modest amount of VAT put on new houses increasing over time allowing the market to sort itself out over decades of sales.

House building -

House building –

So there is no danger of an immediate increase of 20% in the price of new houses, it just won’t happen. But houses are taxed already remember, so we could well see future governments bowing to pressure and maybe replacing land value stamp duty for new houses with VAT (to make it more palatable and EU compliant), with the claim that it simplifies things.

So maybe it’s not such a ridiculous thought after all. The government of the day would hail a victory by saying that they had successfully stopped the full 20% being imposed and beaten the EU down to possibly about 2%. But then any such harmonisation would conceivably remove the sovereign right of the UK government to impose or justify any extra ‘mansion tax’ into the future for example.

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