Lee Sharpe looks at the new Green Homes Grant for English homes.
Introduction to the Green Homes Grant
Unsurprisingly, the main focus of the Chancellor’s Summer Statement of 8 July 2020 was the SARS-CoV-2 pandemic and measures to encourage job retention (and even creation), and to help businesses in the hospitality sector.
But the property sector was given a couple of shots in the arm:
- Stamp Duty Land Tax (SDLT) in England and Northern Ireland – the nil rate band was temporarily increased from £125,000 to £500,000 from the date of the speech (8 July 202) until 31 March 2021. Increasing the size of the nil rate band like this means a saving of up to £15,000 in SDLT for each dwelling (although the 3% Higher Rate for Additional Dwellings is still in point).
The Scottish government soon followed suit, and the Land and Buildings Transactions Tax nil rate band was likewise increased from £145,000 to £250,000 from 15 July 2020 and Wales’ Land Transaction Tax nil rate band rose from £180,000 to £250,000 on 27 July 2020 – both similarly to last until 31 March 2021.
- A new Green Homes Grant, exclusively for homeowners in England, which will be covered in more detail below. The grants under the scheme will cover landlords of rental properties, to help fund energy-efficiency projects, but there is a limit on the total funding available, so homeowners will want to act quickly to secure a voucher for any improvements.
How Does the Green Homes Grant Work?
The government will issue vouchers to partly cover qualifying projects to improve the energy-efficiency of England’s existing housing stock (it will not be available to new-builds).
In most cases, the government will fund up to 2/3rds of the qualifying improvement measures per household – i.e., £2 of government funding for every £1 the applicant spends – up to a total of £5,000 in government funding per household.
However, the government will also fund up to 100% of up to £10,000, for qualifying low-income households – i.e., those in respect of certain state benefits.
There are “primary” and “secondary” measures: applicants must undertake at least one qualifying “primary” project in order to unlock equivalent funding for “secondary” measures.
Primary Measures of the Green Homes Grant:
Insulation: Solid wall, cavity wall, under-floor, loft, flat roof, room in roof, park home
Low-carbon heat: Air source heat pump, ground source heat pump, solar thermal
Notes on primary measures funding:
- Low-carbon heating will be funded only if there is adequate insulation (or will be by the end of the project)
- Funding for “top-up”/additional insulation is allowed but not for replacing existing insulation
- No funding for anything reliant on a gas supply such as a condensing gas boiler, or solar-electric
Secondary Measures of the Green Homes Grant:
Windows and doors: Double- or triple-glazing (where replacing single glazing), secondary glazing (in addition to single glazing), upgrading to energy-efficient doors (where replacing doors installed prior to 2002)
Heating controls and insulation: appliance thermostats, hot water tank thermostats, hot water tank insulation, smart heating controls, zone controls, delayed start thermostat, thermostatic radiator valves
Notes on secondary measures funding:
- Only accessible if at least one primary funding project undertaken
- Government will fund only as much for secondary measures as has been applied for primary measures (up to the £5,000 limit for overall government funding across primary and secondary measures)
Clearly, aside from the special funding for low-income households, the total spend across all qualifying projects will have to cost at least £7,500 to secure the maximum government funding, requiring at least £2,500 from the homeowner.
If the homeowner or landlord wants significant funding for secondary measures, then he or she will have to spend at least as much on qualifying primary measures. But low-carbon heat installations are expensive, so there may not be much funding left over for secondary measures anyway.
Why to Landlords?
While the easiest answer might simply be, “why not?”, energy inefficient housing in the private rented sector has long been recognised as an issue by the government, which set Domestic Minimum Energy Efficiency Standard (MEES) Regulations in 2018 for privately-rented properties in England and Wales; the Energy Saving Trust reported in 2019 that the prevalence of low-efficiency housing in the private rented sector was roughly 9 times worse than in the social housing sector.
Tax Treatment of the Green Homes Grant
Where someone receives a government or similar grant towards their capital costs, the grant reduces the amount of allowable capital expenditure as and when a capital disposal arises (TCGA 1992 s 50). Where it would be considered a grant towards revenue expenditure, then it is generally taxable as income (ITTOIA 2005 s 105, CTA 2009 s 102).
Broadly, where the works are primarily undertaken to improve the energy-efficiency of the property, they will comprise capital enhancement expenditure, and will not be allowable against rental income.
Most readers will be aware that replacing single-glazed windows with double-glazed windows will ‘count’ as a repair, and simply uses modern materials / technology. Indeed, this is even included as an example in HMRC’s Business Income Manual, at BIM46925.
But expenditure is allowable in a rental business only where it has been incurred wholly and exclusively for the purposes of the rental business (ITTOIA 2005 s 34; CTA 2009 s 54). Where there is a substantive intention to improve the property, then this will mean that any repair or similar business-oriented purpose is not exclusive.
Example 1 of the Green Homes Grant
Sid has a detached property with large gardens and has long considered a ground source heat pump as a great way to provide background heating for decades to come. The project will cost around £15,000 so government contributory funding would be welcome. The property currently has a gas condensing boiler.
Sid’s intention is to improve the property. The expenditure will ‘last’ for decades (the heat exchange system should last for around 100 years, although some elements will need replacing after 20+ years). This is not replacing a matter of replacing existing/similar installations. It will be a capital improvement and no part will be allowable against rental income.
Example 2 of the Green Homes Grant
Sam has had a rental property for a number of years and a long-term tenant has just moved out, so there is an opportunity to undertake meaningful repairs. Sam wants to replace some old single-glazed windows, a couple of double-glazed windows and some old draught-proofing that has long since become ineffective.
Sam receives funding under the Green Homes Grant Voucher Scheme to cover the cost of replacing the single-glazed units and the draught-proofing materials. (The Scheme will not fund the cost of replacing windows that are already double-glazed).
Since Sam’s primary motivation is to undertake repairs that will qualify under normal principles, the net expenditure will be allowable against rental income. Sam is taking advantage of a void period between tenants and the funding is merely fortuitous timing. The funding will partly offset the expenditure that will be allowable for tax purposes.
Given the aims and nature of the funding, it seems likely that most projects will fall closer to Example 1 than Example 2. Most primary measures will be capital additions. It seems that the secondary measures may offer more scope to claim on revenue account.
How To Apply for the Green Homes Grant
The government has announced that vouchers will be available from the end of September 2020. Once the Scheme is up and running, you will have to make an online application detailing the measures you want to be carried out, and your details will then be forwarded to local tradespeople accredited under the TrustMark or Microgeneration Certification Scheme, who will then issue quotes for your approval; the approved quotes can be submitted for a government voucher.
Meanwhile, you can currently check the measures recommended for your property/ies at the Simple Energy Advice website .
Conclusion of the Green Homes Grant
A “triple your money” offer from the government is almost too good to be true. But the government reportedly hopes to fund improvements to as many as 600,000 homes in England under this Scheme – a meaningful proportion of the country’s housing stock.
Note that while the headline amount for the Green Homes Grant is £2billion, £500million of this is earmarked for Local Authorities. It seems unlikely that the remaining £1.5billion will be around for long!