European VAT agreements allow for the application of a reduced VAT rate, of not less than 5 per cent. for the ‘provision, construction, renovation and alteration of housing, as part of a social policy’. This is subject to the general Community law principles of equal treatment and fiscal neutrality, under which similar supplies are usually taxed at the same VAT rate.
The Government keep the impact of VAT on different types of building work under review, and since 1997 have introduced VAT rate reductions to support the regeneration and renewal of housing stock, and domestic energy efficiency. At Budget 2008 the Chancellor announced that the Government would explore the case for further targeted and cost-effective VAT measures for the refurbishment and renovation of dwellings that are of too poor quality to rent or sell.