What is the definition of golden brick?
The term Golden Brick refers to a specific point in a development, when HMRC designates that a building has become ‘residential’ for tax purposes. Before this point, HMRC argue that a building could be either residential or commercial.
Residential is zero-rated for VAT purposes, but commercial isn’t. This makes a big difference!
There is no actual legal definition of ‘Golden Brick’, but it is generally accepted that it is the point at which the foundations have been finished and a Damp Proof Membrane (DPC) has been installed. The concept ‘Golden Brick’ came about when Housing Associations would pay developers for land that they were buying.
Due to the VAT treatment, developers could claim back the VAT for the infrastructure and Housing Associations would not have to pay VAT on the land. It was therefore the most tax-efficient point at which money could be transferred between the two.
Since it was generally a large lump sum, and since it occurred when the theoretical first brick was laid, then the term ‘Golden Brick’ came into use and acquired its current meaning.
How is it relevant for you as a self-builder or a custom builder?
It’s less relevant for you as a self-builder if you are buying the land from a land-owner without any works being done. It’s more relevant if you are buying from a custom-build enabler or a custom-build developer.
In exactly the same way as Housing Associations buy from Developers, if you are buying a serviced plot, the developer will want to sell that to you at Golden Brick so that they can claim back VAT on any costs incurred in the infrastructure or preparation of the site. As explained above, the earliest that this can happen is the point at which HMRC designate that the building is residential not commercial.
The reason that you would want to buy a plot at Golden Brick rather than buying ‘off-plan’, is that you will pay stamp duty on the value of what you buy. In this instance, you will pay stamp duty on the land price only instead of the whole house, saving you thousands of pounds.
How does it work in practice?
On our site on Green Oaks in Essex, you complete on the sale at golden brick, paying stamp duty on the plot price instead of the whole house.
Here’s an example of how the costs might differ.
1) You buy a completely finished home
If for the sake of argument the land cost £250,000, construction £200,000, and the fit out another £100,000, the finished home would cost £550,000, with a stamp duty payment (updated as of February 24) of £31,500 if you are buying an additional property, £15,000 if you are moving property or £6,250 if you are a first time buyer
2) You buy the plot from us at golden brick at £250,000, and built it yourself. Then stamp duty would be £0 if you were a first time buyer or if you are moving home, or £7,500 if you are buying an additional property. Giving you savings of up to £24,000
Gus started in the property world over 20 years’ ago when he accidentally project managed his own loft conversion and then went on to do his own self-build home in NW London. He has been in property ever since. His believes self-build and custom build delivers better quality, better design, better value and is better for the environment. He sits on the national executive board at NaCSBA and chairs the custom build developer group. He is a member of the Expert Advisory Group and contributed to the Bacon Housing Review for Government. He is a frequent architectural judge and speaker and is a member of two design review panels.
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