At present, the UK Government is aiming for the country to reach net-zero emissions by 2035. They have also renewed their focus on tackling fuel poverty due to the global uncertainty around gas prices. All this means that the Government wants the country to rely on renewable energy rather than fossil fuels. They also want to increase the UK energy sector by investing in systems which harness energy at home rather than relying on fuel from abroad. With all that in mind, they have introduced a number of grants for renewable energy projects. This includes funding for heat pumps.
This guide will take you through the grants available for your heat pump. Most UK homeowners are eligible for at least one grant. We’ll also provide information about the VAT reduction which applies to heat pump installation. Until 2027, VAT on heat pumps is reduced to 0%, meaning a huge saving on installation projects.
Most of the schemes outlined in this guide are available for a fixed time period, or operate on a first come, first served basis. All the information in this guide is correct as of October 2022. We will endeavour to keep the details up to date with any changes.
The Boiler Upgrade Scheme
What is the Boiler Upgrade Scheme?
From April 2022, the UK Government is offering up to £6000 towards the cost of a heat pump system. This is available to those who are converting their current heating system, as part of the £450 million Boiler Upgrade Scheme.
The scheme is part of the Heat and Buildings Strategy, which aims to reduce carbon emissions in homes. The scheme was introduced to replace the Renewable Heating Incentive (RHI) which was offered until March 2022. The RHI gave payments to homeowners for the clean energy produced by renewable heat sources such as heat pumps and solar panels for seven years.
Instead of providing ongoing payments for a fixed number of years, the Boiler Upgrade System gives you a one-off grant of £5,000 towards the cost of an air source heat pump, or £6,000 for a ground source heat pump or biomass boiler. One grant is available per property. The scheme is available to homeowners in England and Wales until April 2025.
Who is eligible for the Boiler Upgrade Scheme?
All homeowners, small landlords, and private landlords in England and Wales who are replacing a traditional fossil fuel or electric heating system with a renewable heating system are eligible.
The new system must use liquid to heat your home. This rules out air-to-air systems which fan the heat out around your house. However the much more widespread air-to-water and ground source heat pump projects are eligible. You can read more about the different types of heat pumps here.
In order to be eligible, you must also have a current Energy Performance Certificate (EPC) for your property. This must be granted within the last ten years, without any outstanding recommendations for loft or cavity wall insulation. This is to ensure your home has enough insulation to adequately retain the heat produced by the new renewable system.
New build properties by developers are not usually eligible for the scheme. However, if you are building your own house you should be.
How do I apply for the Boiler Upgrade Scheme?
To receive a grant through the Boiler Upgrade Scheme, your installer will need to apply for it on your behalf. Ofgem will then contact you to confirm your consent in the process as the homeowner. If you meet the criteria and the government approve your application, they will issue the grant voucher to your installer.
The voucher is valid for three months for air source heat pumps, and six months for ground source heat pump systems. You must complete the project during this time period. After the installation your installer will redeem the voucher through Ofgem and receive the funding for the heat pump directly.
£450 million may sound like a huge amount of money for the Government to allocate to the Boiler Upgrade Scheme. But dividing this into £5,000-£6,000 grants, it means only a maximum of 90,000 homes will be eligable. This is a tiny proportion of the 25 million households in England and Wales.
The grants are given on a first come, first served basis, depending on which homeowners have registered their interest with a heat pump installer. You can find out more information about the scheme, as well as the exhaustive criteria for eligibility on the UK Government website.
The Energy Company Obligation
What is the Energy Company Obligation?
The Energy Company Obligation is another UK Government scheme which obligates medium and large-scale energy companies to help reduce fuel emissions and tackle fuel poverty.
Companies subsidise the cost of energy efficiency improvements to houses. This includes funding for heat pumps
Energy suppliers included in the scheme are given reduction targets based on their share of the domestic gas and energy market. Ofgem publish reports each month showing each supplier’s progress with their carbon emission reductions.
Who is eligible for the Energy Company Obligation?
The government encourage energy suppliers within the scheme to target households who struggle with the cost or their energy bills or who live in homes with especially low energy efficiency.
You may be eligible for financial help through the Energy Company Obligation if you claim certain benefits while living in private housing or live in social housing. The Ofgem website provides further information on eligibility criteria.
You will need to put the funds towards improving the insulation of your home or upgrading your heating system. So if you’re looking for funding for a heat pump, you need to be retrofitting it rather than installing it in a new build house.
You’ll need to either own your own home or have your landlord’s permission to receive help from the Energy Company Obligation.
How do I apply for the Energy Company Obligation?
You can contact your local council, who will refer you to obligated energy suppliers.
Alternatively, you can contact an obligated energy supplier directly. It doesn’t matter who your current energy supplier is. You don’t need to buy your energy from an obligated supplier to receive funding.
VAT reductions for heat pump funding
What are VAT reductions for heat pump funding?
Up until April 2022, the government only gave VAT reductions on heat pump installations to homeowners who received disability benefits or were over 60.
But from April 2022, these eligibility criteria have been removed. The government has now removed all VAT on energy-saving measures for householders. This means a reduction from the normal VAT rate of 5% to 0%. A decrease of 5% may not sound like much, but for an average ground source heat pump installation this equates to savings of between £1,000 and £2,000.
Who is eligible for the VAT reductions?
There aren’t any eligibility criteria for the reduction – it applies to everyone.
How do I apply for a VAT reduction?
The great news is that you don’t have to apply for it or fill out any paperwork. The reduction automatically applies across all purchases.
The VAT reduction applies to all energy-saving measures for homes. This includes the installation of solar panels, home insulation, insulating render, and, of course, heat pumps. Whilst this scheme does not directly target funding for heat pumps, the reduction does cover air source and ground source heat pumps.
The reduction in VAT is in place until April 2027. This may seem like a long way off. But given the long-term nature of many projects it is worth starting to plan your heat pump installation sooner rather than later to ensure you can benefit from zero VAT.
The Nest Scheme
Those living in Wales should investigate the Nest scheme which offers free home energy improvements to people who are struggling with their bills.
To be eligible, you must own your house or privately rent it (as opposed to being in social housing), and it must be demonstrably inefficient and costly to heat. You must also receive a means-tested benefit, or suffer from a chronic respiratory, circulatory, or mental health condition.
If you are eligible, British Gas will carry out a home survey to assess which home improvements are suitable and financially covered by the Nest scheme. These can include funding for heat pumps or other new heating systems, improvements to house insulation and draught proofing. More information is available on the Nest helpline, which is run by the Energy Savings Trust.
Funding schemes in Scotland for heat pumps
Those living in Scotland may be eligible for the Home Energy Scotland Loan, an interest-free loan from the Scottish Government to help with home energy efficiency improvements.
The Warmer Homes Scotland programme provides complete funding for households who want to improve the energy efficiency of their home, but who are finding it hard to pay for their energy needs. This grant is allocated on a first come, first served basis. If you think you may be eligible we advise you to enquire quickly.
You can find out more information on both these schemes at Home Energy Scotland.
Do all installers accept Government funding for heat pumps?
Yes. Funding for heat pumps via government grants is applicable no matter which company you choose to install your new system. However, some installers may be better informed and more able to support you through the process. This is especially important for the Boiler Upgrade Scheme which your installer will apply for on your behalf.