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A Golden Age for Golden Brick?

Many developers will be familiar with the concept of “golden brick” contracts, where the sale is completed when the construction of new dwellings being built on land has reached the stage that allows the transaction to be zero rated for VAT purposes. This prevents the developer having to charge VAT but allows it to recover its input tax.

Good news – HM Revenue and Customs has issued guidance which confirms that advance payments made under “golden brick” contracts between developers and registered social landlords will not result in a chargeable supply for VAT purposes, provided it is clear that what will be supplied at completion, or at the time of grant, will be partly completed buildings (beyond golden brick).

This removes previous uncertainty and means that advance payments can be released to the developer before construction of the affordable housing has begun. However to ensure that no VAT will be become due the developer must be sure, at the time the payment is made, that the golden brick stage will have been reached by the date of contractual completion of the sale. It is therefore important to draft the contract carefully so that the trigger for contractual completion cannot occur before the golden brick stage has been reached.

For further details please do not hesitate to contact the Property Development team.

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