What is a 'Golden Brick' agreement?

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Published on LexisPSL on 03/11/2014

The following Construction Q&A provides comprehensive and up to date legal information covering:

  • What is a 'Golden Brick' agreement?

What is a 'Golden Brick' agreement?

A ‘Golden Brick’ scheme or arrangement is a method of structuring the acquisition of land (with no buildings on it) for residential property development that mitigates VAT exposure for both the vendor and the purchaser. A ‘Golden Brick’ agreement will set out the terms of such an arrangement and be entered into between the vendor and the purchaser.

The golden brick scheme is particularly used by registered social landlords (‘RSLs’) who purchase development sites for the construction of affordable housing. It becomes relevant where the property being purchased is subject to a VAT election or ‘option to tax’ made by the vendor. The vendor may choose to elect to charge VAT on the sale of land in order to reclaim VAT that it paid on the purchase of the land and costs associated with it (eg planning).

However, if the purchaser is an RSL who purchases the land to construct rental properties, it will not be able to recover any VAT that it pays on the purchase price. The rental of social housing is exempt from VAT so the RSL cannot recoup the VAT paid. Therefore, if the land to be purchased is to be used entirely for rental properties, a golden brick scheme may be proposed as a means of enabling it to avoid having to pay VAT on top

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