Green Homes Grant – All you need to know as a homeowner or a landlord
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.