The government’s decision to lift the VAT exemption on listed buildings and impose a 20 per cent VAT charge from October 1 2012 means that many property owners are rushing to finish restoration or alteration work before the charge comes into place.

Imposing VAT at 20 per cent to all alterations and restorations means that owners of these types of properties will be hit with a large increase in the costs of maintaining a listed property.

The Royal Institution of Chartered Surveyors (RICS) is calling for the government to replace the significant 20 per cent levy with a five per cent VAT charge on all home repair, maintenance and improvement works. RICS is concerned that the additional 20 per cent taxed will mean that restoration and improvements are no longer financially viable for many owners of listed properties.

Stephen Thornton, RICS’ UK Head of External Affairs, commented: “The Chancellor has missed a golden opportunity to create a level playing field on all residential works. Research shows that five per cent VAT across the board would create 26,560 jobs in the construction sector with a total economic stimulus of around £1.7 billion in 2012 alone.

“RICS’ view is being echoed throughout the property industry with many lending their voice to the condemnation surrounding the lifting of the VAT exemption.” 

Richard Ling, Planning Consultant for Commercial Money Matters Rural, commented: “Many of the proposals to alter and/or restore listed buildings operate at much higher cost than for proposals that do not involve listed buildings. Considerable consultation takes place with the Planning Authority and bodies such as English Heritage before a scheme is even worked up and costed.  

“Conditions and obligations also add to the total cost of the project. Such projects may, however, be the only practicable way of ensuring either that the listed building can be maintained if not in whole then in part, and that a beneficial use can be found for the building.  These are plus factors benefiting the wider community but are brought about by commercial/business organisations.”

Vishal Pankhania, of Belleveue Mortlakes Chartered Surveyors, said: “From a valuer’s perspective, if a listed building was in poor order and it required restoration work, the additional cost burden of VAT would be reflected within the valuation. The allowance deducted to arrive at a market value would be higher than usual to reflect the additional cost of VAT. The magnitude of the deduction would be down to the size of the building and scale of the project.

“Costs associated with restoration and alteration works are variable costs which, if carefully managed, can be achieved within budget. It could be argued that the specification/quality would be influenced in a bid to abide with financial constraints.”

Richard confirmed that, in his view: “In these circumstances RICS is correct to call on the government to alter its stance at lifting the VAT exemption, as this is adding a significant cost burden which is very likely to stymie a scheme financially. This then has a knock-on effect on increasing the stock of listed buildings that require alteration/restoration.  

“It will reduce the number of potential buyers of listed buildings and prospective purchasers and those owners considering conversions/restorations may be required to commission even more detailed and costly surveys of such buildings to satisfy lender requirements. “

Vishal added, “We have seen the growing popularity of bridging finance over the last few years and it could be argued that purchasers may utilise bridging finance as top-up finance to pay for alterations. However, this may only be an option taken up by those working within strict time lines, between now and October. We wouldn’t predict the VAT inclusion would affect listed properties being used as security for a bridging loan.”

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