Energy Efficient vs Non Energy Efficient – Difference in Property Rates

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The UK government aims to cut GHG emissions by 80% by 2050 and energy use is pivotal in achieving this. Energy is a necessity for homeowners and businesses alike, which is why there are policies to make buildings more efficient. Increasing the energy efficiency of properties is one of the most convenient ways to reduce the carbon footprint in the country and avoid fuel poverty. Compared to other European countries, UK’s real estate is one of the least energy efficient. In a bid to change the situation, the government and other players in the energy sector are finding ways to incentivise home buyers, landlords and construction companies to aim for more sustainable buildings.

Increased Property Value

One of the benefits of making a property energy efficient is an improved worth. A 2013 report by the Department of Energy and Climate Change showed that buildings with energy savings had a value increase of between 14 and 38% in different parts of England. The study looked at over 300 homes in the period between 1995 and 2011. Value increase for energy efficient properties is reflected higher in some regions than others due to other underlying factors such as availability of transport. The bottom-line is that construction companies and property owners can earn sizeable profits by retrofitting a home with various energy savings appliances.

VAT

Another difference between energy efficient and non-energy efficient homes is in the payment of VAT. In the UK, residential accommodations get a 5% reduced Vat for using energy saving materials. It means that real estate owners who utilise sustainable materials for construction can reduce the cost of a building. However, only select materials qualify as energy saving and these include:

  • Insulation for roofs, walls, ceilings, floors, pipes or other plumbing fittings
  • Wind and water turbines
  • Hot water system controls
  • Central heating system controls
  • Draught stripping for windows and doors
  • Air source heat pumps
  • Micro combined heat and power units
  • ┬áSolar panels
  • Boilers fuelled solely by straw, wood or similar vegetal matter
  • Ground source heat pumps

Tax and Other Incentives

The UK had several programs that offer tax incentives to property owners and buyers of energy efficient homes. Plans such as the Green Deal offered subsidies for owners of green buildings. However, most of these programs were scrubbed due to implementation and other issues. The government is currently working on ways to incentivise property owners to introduce energy saving measures in buildings. Currently, building owners can get tax points for using thermal insulation, which falls into the special rate pool. According to the HMRC, capital expenditure on ‘roof lining, draught exclusion, cavity wall filling and double glazing as can be treated as expenditure on thermal insulation.’
One program that domestic and non-domestic property owners can capitalise on is the renewable heat incentive, which promotes the use of renewable heat technologies. The scheme gives participants fixed payments for seven years for using sustainable heat sources. Biogas, solar thermal collectors and biomass boilers are some of the fuel technologies that qualify for the scheme. Buildings must also attain certain insulation requirements to enter the program.
In Scotland, property owners have the Home Energy Efficiency Programmes and Home Renewables Loan Scheme that can slash the cost of purchasing a home. The Boiler Replacement Scheme in Ireland is also a great incentive for building owners.

New EPC Ratings

As of April 1, 2018, the UK private property market will be using revised EPC (Energy Performance Certificates) rating standards. EPC ratings became mandatory so that homeowners, prospective buyers and tenants could understand the energy efficiency standards of a property. The energy savings of a building are rated on an alphabetically ranged scale with A (92-100) being the highest and G the lowest. (1-20). EPC ratings take into account the heating facilities, insulation, and hardware of a building. An owner has an obligation to present the EPC ratings of a property during a sale. When the new regulations come into effect, all properties must have a minimum rating of E before tenants move in. Property owners get a few suggestions on how to achieve the required ratings like using high-quality insulation materials, installing smart storage heaters and using LED bulbs. As of April 1, 2016, under the same regulations, tenants are allowed to ask for energy saving improvements to rented properties. If a tenant intends to get loft insulation, for instance, the landlord is obligated to grant the request. The only exemptions are for requests considered as ‘unreasonable.’ Non-domestic properties will also have to adhere to the regulations from 2018.
The need to reduce human impact on the environment has helped with the establishment of effective ways to conserve energy in buildings. There is also the reduced power cost for homeowners. It is expected that more legislations may come up in the future that will further influence the UK property sector.