The European Court of Justice has dealt a significant blow to all private home owners, including landlords and tenants wanting, or needing, to make energy efficient improvements to their properties.

Such improvements are now set to attract VAT at the full 20% rate, rather than the current 5% set by the UK government to encourage energy improvements.

The European Court has ruled that the 5% VAT rate prevalent in the UK breaches European law.

The court has said that the 5% rate only applies to social housing.

The ruling affects all home owners, but importantly private landlords whose properties do not have at least EPC ratings of E on their properties and face having them banned from the rental market by 2018.

The ruling also affects private tenants who, from next April, can request consent to carry out energy improvements at their own expense, with landlords only able to refuse such a request if it is “unreasonable”.

The ruling comes just months after the Government scrapped the Landlord Energy Savings Allowance.

The new court ruling has caused consternation since much private rental stock is old and below E rating.

For such housing, energy saving improvements would not come cheap.

Government statistics show that 32% of all private rented housing stock was built before 1919, making it some of the hardest to insulate of all housing.

Just 24% of homes in the sector have cavity wall insulation and only 25% have 200mm or more of loft insulation.

The Residential Landlords Association is calling for urgent discussions with UK ministers.

RLA chairman Alan Ward said: “The RLA fully supports efforts to improve the energy efficiency of the country’s housing stock.

“The judgement of the European Court of Justice, however, jeopardises efforts to do so.

“Private rented housing faces some of the most difficult challenges in improving its energy efficiency given the age of the stock and needs greater not less support to meet the Government’s ambitions on home insulation.

“We are calling on ministers to give serious consideration about a way forward that supports landlords and tenants alike.”