VAT blow looms for homes

GORDON Brown looked set to perform a balancing act with the property sector today as a key report recommended VAT be imposed on new homes.

A review of the property sector by Bank of England monetary policy committee member Kate Barker today suggested a likely 5% tariff be imposed on new-home sales in non-brownfield areas.

The measure is likely to irk the powerful housebuilding industry lobby. However, Brown was expected to placate critics with a radical new measure to attract billions into the British property sector.

In a review on housing supply, Barker said there was 'merit in the Government considering a tax-transparent vehicle (based on the US Real Estate Investment Trust [Reit] model) to encourage increased institutional investment'.

Analysts say these Reits could eventually double the value of the quoted property sector to £40bn.

The Chancellor was expected to unveil plans for a property savings scheme along the lines of Reits, popular in America and France, in his Pre-Budget Report, boosting commercial and residential building.

Institutional investors account for only 1% of total investment in UK residential property, the Barker report states. Firms can put assets into Reits and, as with a unit trust, investors can buy a stake in them.

The trusts also act as a tax shelter, which could allow firms to pay bigger dividends. The Government could reap a windfall from a charge for each Reit established.