Changes to the Taxation of Local Searches

Home buyers are facing increased costs as a result of the Government’s decision to  remove the VAT exemption on certain services provided by local governments.

Local Authority searches are obtained to check,, as part of a property purchase, issues affecting the property such as  planning permission, building regulation certification, adoption of nearby roads, enforcement action against the property, listed building status and planning designations (e.g.. permitted development).  This kind of information can have a significant effect on the value of a property, so mortgage lenders require such searches to be obtained before they will lend on property, whether it be residential or commercial.  And even home-buyers lucky enough to be buying without a mortgage are likely to want to make such searches to find out about issues which may affect the value of their new home, and to find out about issues which may have an impact on their enjoyment of the property once they move in.   The changes will therefore affect almost anyone buying a property.

Until this year, conveyancing services provided by Local Government have been exempt from VAT, including the searches required in conveyancing matter.  However, from 1st January 2017 this is set to change

With the typical Local Authority search costing £100-£200 (up to twice that if you are buying in London), The addition of VAT at 20% will mean that buyers will typically pay an extra £20-£40.

Further to this impact is the issue of implementation.  Whilst the Government is seeking the imposition of VAT across all Local Authorities from the start of 2017 some authorities have been granted a period of transition to enable their systems to be updated to take into account the changes.  Local Authorities may be granted an extension until 31^st March to implement the new rules, as not all authorities’ systems are set up to allow them to charge Vat at present.  For example, B&NES was expected to increase their search charges, but have been allowed to waive the VAT until such time as their computer system has been updated. 

Unfortunately, this does mean that neither buyers nor their lawyers can be certain exactly when the new charges will kick in.  

So if  you are planning buying a property in the early part of this year,  it is worthwhile speaking with your solicitor first to check whether the local authority concerned has started charging yet, and if not, whether it is known when they will start to charge VAT,  so that  you can budget accordingly, perhaps with a little extra in the pot.  Just in case.

If you are thinking of buying a property and would like further advice, please contact our property department