Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN26 Stamp Duty Land Tax: relief for new zero carbon homes

Who is likely to be affected?

1   The relief will benefit most buyers of new zero carbon homes from 1 October 2007.

General description of the measure

2   As announced in the 2006 Pre-Budget Report, a regulation-making power will be introduced in Finance Bill 2007 to bring in a new time limited relief from stamp duty land tax (SDLT) for the vast majority of new zero carbon homes in the UK.

3   Qualifying criteria for the relief, which will be set out in regulations to be laid before Parliament by the end of the Summer Recess, will require zero carbon emissions from all energy use in the home over a year. To achieve this, the fabric of the home will be required to reach a very high energy efficiency standard and to be able to provide onsite renewable heat and power.

4   There will be a certification process for all new homes and qualification for the exemption which will be dependant on homebuyers having a certificate. Detailed arrangements for the certification process will be issued in due course.

Operative date

5   The measure will have effect on and after 1 October 2007. The relief will be time limited for 5 years and will therefore expire on 30 September 2012.

Current law and proposed revisions

6   Legislation for SDLT is in Finance Act 2003. Finance Bill 2007 will contain a regulation-making power to bring a new relief to provide for zero carbon homes.

Form of relief

7   New homes which are liable to SDLT on the first sale will be eligible to qualify. The relief will provide complete removal of SDLT liabilities for all homes up to a purchase price of 500,000. Where the purchase price of the home is in excess of 500,000 then the SDLT liability will be reduced by 15,000. The balance of the SDLT will be due in the normal way.

Detail of qualifying criteria

8   The aim of the relief is to ensure that on average over the course of a year the homes are zero carbon. In other words, they will not be required to be zero carbon the whole time, but the import of grid power and export of renewable power should at least balance over the course of a year.

9   This standard will be measured by use of the Government's Standard Assessment Procedure for the energy rating of dwellings (SAP).

10 SAP is a comprehensive tool used throughout the UK for calculating energy costs and carbon emissions of homes, and has been developed by the Buildings Research Establishment (BRE) on behalf of the Government. The latest published edition is SAP 2005. It can be found on the BRE website at the following address, www.bre.co.uk/sap2005. SAP will be required for Energy Performance certificates. In England and Wales it is used to compute the energy efficiency of dwellings within Part l of the Building Regulations 2000, and the Code for sustainable homes.

Fabric of the building standard

11 It will also be necessary to ensure that the fabric of the building significantly exceeds the standards currently required by Part l of the Building Regulations 2000 (as amended).

12 The requirement will be that the "Heat Loss Parameter" (covering the walls, windows, air tightness and other elements of the building design) is no more than 0.8W/m2K. This standard will mean that space heating requirements are no more than 15kWh/m2 per annum.

Heat and power generation

13 The SAP computation takes into account energy consumed through heating, lighting and hot water provision. The homes will have to reach zero carbon for these factors using the SAP computation.

14 Heat and power for this element must be generated either in the home or on the development or through other local community arrangements (including district heat and power) and must be renewable (i.e. non-fossil fuel) energy.

Additional power for appliances

15 A zero carbon home is also required to have zero carbon emissions from use of appliances in the homes (on average over a year). SAP does not contain any provision for energy consumption of appliances but will be updated to do so in due course.

16 Until SAP is updated the appliances element of the qualification will be that each home must provide an amount of renewable electricity equal to a specified amount of kWh per metre squared of floor space in addition to that required to meet zero carbon in the SAP 2005 to approximate to the average appliance energy consumption. This will depend on the floor area of the home as indicated in the following table:

Total floor area m2 kWh/m2 per year
Up to 89 24.97
90-99 23.53
100-109 22.10
110-119 20.76
120-129 19.53
130-139 18.42
140-149 17.43
150+ 16.54

17 This additional power must be renewable power produced either within the area of the building and its grounds, elsewhere in the development, or elsewhere as long as the developer has entered into arrangements to ensure that the renewable generation is additional to existing plans.

18 The amount of such additional power can be reduced by any surplus from the arrangements to meet zero carbon on heating, hot water and lighting.

Micro generation equipment

19 Later in 2007, the Department of Trade and Industry will launch a scheme which will approve micro generation equipment. Use of approved equipment will be a requirement of the exemption.

Gas mains connection

20 Qualifying homes will not be permitted to be connected to the gas main.

Wind power generation

21 SAP currently does not take account of micro wind generation. A modification to take this into account is expected later in 2007

New homes

22 The relief will be available for most new homes when sold for the first time. These will be defined as dwellings which are first occupied for residential purposes at the time of the transaction which leads to the stamp duty land tax charge.

23 Relief will not be available on second and subsequent sales nor on existing homes.

Linked transactions

24 In SDLT, consideration for more than one transaction as part of a single arrangement, scheme or series of transactions is aggregated to arrive at the total consideration due and therefore the rate of tax. Where the home qualifies for the zero carbon homes relief this aggregation will be modified so that each home purchased at the same time will be treated as a separate purchase and can therefore qualify for the relief of up to 15,000.

Operational issues

25 The new relief, in common with other reliefs, will be claimed on a land transaction return form.

26 Certification of the exemption will be provided as part of the building control process and will not be provided by HMRC. In due course certification will be part of the energy performance certificate process.

27 Regulations will cover further definition and administrative matters.

Further advice

28 If you have any questions about the various aspects of this change, please contact the relevant government department.

•   the definition of zero carbon home: Tony Verran, HM Treasury, on 020 7270 6041 (e-mail Tony.Verran@HM-Treasury.gsi.gov.uk).

•   the certification process: Mickey Green, Department for Communities and Local Government, on 020 7944 8790 (e-mail Mickey.Green@communities.gsi.gov.uk)

•   SDLT issues other than the definition, certification process and SAP:

Michael Lyttle, HMRC, on 020 7147 2792 (e-mail; michael.lyttle@hmrc.gsi.gov.uk)

A Regulatory Impact Assessment for this measure and information about other Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk