Tax incentives

Examples of tax incentives in Front Runner Regions (FRRs)

Hannover

Tax incentives for deep refurbishment measures

To qualify, the building’s performance after completion of the retrofit must reach 85% of the new-build standard. Costs associated with reducing the energy demand of the building will then be tax deductible over ten years. For households in the highest income bracket, at the marginal tax rate of 42% (plus solidarity tax), the tax deduction corresponds to 35% of the full retrofit costs for self-occupied buildings (introduction of tax deductibility) and 16% of the retrofit costs for rented buildings (acceleration of tax deductibility), assuming a 4% real discount rate. The introduction of tax incentives as an additional support mechanism was motivated by the political preference for tax incentives over an increase of budget support for KfW bank, and by the expectation that some investors will consider tax saving opportunities to be more attractive than preferential loans or grants.

Brussels

Tax incentive for energy efficient buildings

In 2009, the Federal Government offered tax breaks for efficient buildings. Thus, a building defined as “low-energy” obtained a tax reduction of €420, a passive building - €850 and a zero-energy building €1.700. The tax breaks were valid for a period of 10 years, renewable annually, provided that the building continued to adhere to passive construction guidelines. However, in November 2011 the Federal Government eliminated federal tax breaks for low energy buildings, even though they had been a useful mechanism to stimulate the industry towards lower energy construction. Consequently, the viability for passive construction in the Brussels-Capital Region plummeted. In order to compensate for the loss of federal subsidies, the regional government of Brussels doubled certain energy subsidies, including:

• The exterior wall insulation subsidy was doubled, reaching 110 €/m²;

• The double glazing subsidy was tripled, reaching 130 €/m²;

• The condensing boiler subsidy was doubled, reaching 1 600 €;

• The heat pump subsidy was doubled, reaching 4 750 €;

• The solar water heater subsidy was increased by 50%, reaching 3 500 €.

The relevant subsidies are discussed further here.

Lower VAT rates for investment in refurbishment works

For existing residential buildings since 1st of January 2000, the VAT rate has been reduced from 21 to 6% for dwellings older than 5 years for restoring works, transformation works, important maintenance works and small works like painting. This measure may be cumulated with the tax reduction and the subsidies for energy saving investments.

Examples of tax incentives in other regions

UK

Reduced Sales Tax for Energy Savings Materials

A reduced rate of Value Added Tax (VAT) of 5% is charged on certain energy saving materials, provided that they are professionally installed in a residential or charitable property (such as non-business or village hall).

The reduced rate covers:

• All insulation, draught stripping, hot water and central heating controls;
• Installations of solar panels, wind and water turbines;
• Ground-source and air-source heat pumps and micro-CHP; and
• Wood/straw/similar vegetal matter-fuelled boilers.

Additionally, grant-funded contractor installations of central heating systems and heating appliances; and grant-funded installations of factory-installed hot water tanks, domestic combined heat and power units, and heating systems that use renewable energy also benefit from the reduced rate when installed in the sole or main residence of a person over 60 or in receipt of certain benefits.

See also the HMRC factsheet

Stamp Duty Land Tax Relief for Zero Carbon Homes

The objective of introducing a stamp duty land tax relief is to help kick start the market for zero-carbon homes, encourage microgeneration technologies, and raise public awareness of the benefits of living in zero-carbon homes. The relief is designed to incentivise demand for zero-carbon homes among homebuyers and will also provide developers with a powerful marketing tool – they will be able to advertise these homes as free of stamp duty land tax which many potential buyers would find very attractive. The relief reduces potential cost barriers for developers given that zero carbon homes cost more than conventional homes.

The stamp duty land tax relief will only be available for a newly built zero-carbon home at the first point of sale. The relief will provide exemption from tax liability when a house costs less than £500,000, and will provide a £15,000 reduction in tax liability to all homes worth more than £500,000.

See also the Regulatory Impact Assessment and the Legislative text

Italy

Tax deductions for energy efficient refurbishment

Tax deductions may be applied to income tax contributions for carrying out energy efficient refurbishment measures to existing buildings. For work carried out between 06/06/13 – 30/06/15, 65% of the expense incurred will be reimbursed. From 01/07/15 – 30/06/16 the contribution will reduce to 50% of the expense. Qualifying measures include:

• Reducing the energy demand for heating^# (up to Euro 100,000)
• Improving thermal insulation of walls, floors, roofs or windows (up to Euro 60,000)
• Installing solar hot water (SHW) panels (up to Euro 60,000)
• Upgrade heating system to condensing boiler (with distribution system) (up to Euro 30,000)
• Upgrade heating system to a heat pump (up to Euro 30,000)
• Upgrade domestic hot water heating system to a heat pump (up to Euro 30,000)

^#Primary energy demand for space heating (in kWh/m2a) must be at least 20% lower than the limiting values given in ‘the decree of the Minister of Economic Development, March 11, 2008, as amended by the Decree of 26 January 2010’ (according to the relevant climate zone for the region (indicated by heating degree days) and the surface area to volume ratio (S/V) of the building. For dwellings with S/V >0.9, limit is between 36-116 kWh/m2a).

See the Revenue Agency website and Energy Tax guidance document for more information

Bulgaria

Tax exemption for A rated buildings

Under the provisions of the Municipal Council, buildings that reach class A energy performance are exempt from tax for a period of 7 to 10 years depending on their technical specifications. (Class A is not as ambitious as the Passivhaus standard.)

Netherlands

TAX reduction for retrofit of houses

VAT in the Netherlands varies from 0% 6% to 21%. The general VAT rate is 21%. The 6% rate is used for food, water, medicine, art, books and a few other categories such as transport, sports and repairing services.

Retrofit and repair activities concerning houses are included in the 6% VAT rate. The VAT rate reduction is mainly focused on labour costs.

The government began this VAT reduction in 2010 and intends to preserve it until 2015. However, each year the regulations are renewed. This temporary government regulation started on March 1st 2013 and the program ends March 1st 2014.

Added to the program in 2013:

• consulting costs of the architect who conduct the process of retrofit.
• laying out of gardens
• houseboat attached to the shore

More information: BTW tarief