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Spring Statement 2022: VAT on green home improvements scrapped

Emma Lunn
Written By:
Emma Lunn

VAT on home insulation, solar panels and heat pumps will be reduced from 5% to zero for the next five years.

The policy will make it cheaper for homeowners in England, Wales and Scotland to make properties more energy efficient which will, in turn, drive down energy bills.

Northern Ireland will not get the VAT cut on green home improvements because of the Northern Ireland protocol; Chancellor Rishi Sunak said the Northern Ireland Executive would receive a share of the value of the relief until it can be introduced UK-wide.

More than 19 million homes are rated band D or below for energy efficiency. These homes cost more to heat.

Sunak said in the Spring Statement: “As energy costs rise, we know that energy efficiency will make a big difference to bills. But if homeowners want to install energy saving materials at the moment only some items qualify for 5% VAT relief and there are complex rules about who is eligible.

“The relief used to be more generous but from 2019 the European Courts of Justice required us to restrict its eligibility. But, thanks to Brexit, we’re no longer constrained by EU law. So today, I can announce for the next five years, homeowners having materials like solar panels, heat pumps, or insulation installed will no longer pay 5% VAT– they will pay zero.”

Sunak said that a typical family having roof top solar panels installed will save more than £1,000 in total on installation, and then £300 annually on their energy bills. The changes will take effect from April 2022.

However, critics pointed out that this tax cut will only help the well-off who can afford to install energy saving measures.

Jason Mountford, financial planning expert at Irwin Mitchell, said: “Sunak announced that this would save homeowners £1,000 on average, however given that the average cost to install home solar panels is £4,800, it is another measure that is unlikely to impact the hardest hit by the energy crisis.”

Justina Miltienyte, energy policy expert at Uswitch.com, said: “It is good that the government is thinking about energy efficiency, but removing VAT for households who want to purchase solar panels and heat pumps does nothing to help those who cannot afford such measures, and could further widen the gap between those that have and those that have not.”