Zero carbon homes incentive ‘insufficient’

Feb 26 2008 by Tom Willows, The Journal

SINCE October 1 last year, the first time sale of a newly constructed “zero carbon home” attracts relief from Stamp Duty Land Tax. Dwellings sold for less than £500,000 will be exempt from stamp duty and where the price is over that level the stamp duty bill will be reduced by £15,000.

The Government’s aim was that the introduction of zero carbon homes would help meet its target of cutting CO2 emissions by at least 60% by 2060 and that the stamp duty concession would act as an incentive for developers to build more of them. In addition to this, the Government has also confirmed its intention that, by 2016, every new home in the UK must be a zero carbon home.

To be classed as zero carbon, a new home must fulfil a plethora of criteria laid down in the regulations brought into force last year, including:

• Having a balance of import of grid power and export of renewable power which is neutral over the course of a year.

• Stringent criteria relating to heat loss through the fabric of the building.

• Heat and power generated either in the home or within the development from a non fossil fuel source.

• Zero carbon emissions from appliances in the home and a pro- hibition on connection to mains gas.

So are we expecting a rush of developments of zero carbon homes?

Well, not quite. We are yet to see a widespread clamour to build zero carbon homes.

This is partly because the relief is only available until October 1, 2012, and only applies to the first sale and no subsequent re-sale. However, the main flaw has to be that the stringent criteria have not been perceived as providing sufficient enough of a financial incentive.

The tax relief is effectively capped at £15,000 and is much lower for less expensive units. The criticisms of the scheme centre on the understanding that making a residential development “zero carbon” would actually cost more per unit than the potential tax saving for the buyer.

Once again, it looks as though the developer is expected to lose some more of its margin in what are already challenging market conditions.

English Partnerships also launched the Carbon Challenge last year calling upon developers to reach the highest level of the Code for Sustainable Homes and to demonstrate that zero carbon homes are economically viable on a commercial scale. It is therefore possible that as further progress in producing zero carbon homes takes effect, together with more opportunities for them through the Carbon Challenge and the onset of compulsion in the next decade, the incentives through stamp duty savings may become more attractive to developers.

Tom Willows is a solicitor in the commercial property department at Dickinson Dees LLP.