Heat pump grant survives Budget as solar VAT set to rise
The Boiler Upgrade Scheme stays, solar and batteries face 5% VAT from April 2027, and gas standing charges are due to go. What it means for your costs.
The heat pump grant is staying, but the funding behind it has been trimmed and solar panels will cost a little more to install from next spring. If you are weighing up a heat pump or solar system, the Budget changes the timing more than the sums.
What the Budget announced
According to pv magazine Global, the main points are:
- The Boiler Upgrade Scheme (BUS) continues. There had been speculation that it would be scrapped. The report says funding for 2027-28 is now set at £400 million, rising roughly in line with inflation after that. The previous plan was £600 million for that year, so the overall budget is lower.
- Solar and battery VAT is changing. Home solar and batteries currently carry no VAT. According to the report, this rises to 5% from 1 April 2027.
- A Warm Home Loans scheme has launched. Government guidance published on Budget day describes state-backed finance for solar, batteries and heat pumps. The government takes on part of the lenders' risk so they can offer lower rates. You apply to a participating lender, through an installer or retailer, or through your mortgage provider. The report says the loans can be combined with grants.
- The Warm Homes Plan gets extra money in 2027, but the report says its multi-year budget is being cut by £1 billion to help pay for defence.
- Gas standing charges are to be removed. The costs would be recovered through the per-unit price instead. The government estimates that 60% of households would save around £45 a year. Electricity standing charges are expected to follow at a later date.
The report also notes that BUS grants of up to £9,000 have been offered, including a higher option for homes heated by oil. For most homes in England and Wales, the grant is £7,500 off an air source or ground source heat pump, and the installer must be MCS certified. In Scotland, Home Energy Scotland offers a grant of up to £7,500 plus an optional £7,500 interest-free loan.
What it means for heat pump costs
Nothing changes for the grant you can claim today. Our model puts a typical air source heat pump at £12,900, with mid-range quotes running £10,100 – £16,800. That is the price before any grant. The installer normally takes the £7,500 off your invoice, so check that your quote shows it as a separate line.
Heat pump installation also currently carries 0% VAT, which applies to energy-saving materials until 31 March 2027. The Budget changes reported above relate to solar and batteries, so we have no new VAT figure for heat pumps.
The standing charge change is worth a thought. Nesta's Andrew Sissons, quoted in the report, says that moving gas costs onto the unit rate could make electric heating a better deal for some homes that use a lot of gas. We have not modelled running costs, so treat that as a direction of travel rather than a saving you can bank. Our full cost guide is at Air source heat pump.
What it means for solar and battery costs
The VAT rise starts on 1 April 2027, so an installation completed before then stays at 0%. After that date, the same system will cost more because of the 5% charge. Our model currently puts a typical 6 kWp system at £12,600, with a mid-range spread of £9,800 – £16,400. These figures reflect the current VAT position.
Batteries matter here too, because the change covers them. You can compare the options in our table:
| Material | Typical | Usual range | Lifespan |
|---|---|---|---|
| No battery | £9,500 | £7,400 – £12,400 | – |
| 5 kWh battery | £12,600 | £9,800 – £16,400 | – |
| 10 kWh battery | £15,700 | £12,200 – £20,400 | – |
| 13.5 kWh battery | £17,800 | £13,900 – £23,200 | – |
If you are close to deciding, order and installation dates matter. Ask your installer in writing which VAT rate applies to your job and when the work will be completed. Don't assume a deposit paid now fixes the rate. Check how the installer treats that.
Should you wait or go now?
- Heat pump: the grant is secure for the current funding period, so there is no need to rush. Do take advantage of the 0% VAT window ending 31 March 2027.
- Solar: the tax change gives you a reason to complete before April 2027 if you were already planning to go ahead. Don't take on a system you don't need just to beat a deadline, though.
- Finance: if you would otherwise borrow, compare Warm Home Loans lenders with other options. The report lists several participating lenders, and rates will differ.
How we work out these figures
Our estimates are built from labour hours multiplied by local rates, plus materials. We check them against market prices and real quotes. When tax or grant rules change, we update the live model, and the figures in this article update with it.
Once you have a quote, run it through our "is my quote fair" tool. It shows whether the price, the VAT treatment and the grant line look sensible for your region and system size.
For more on related work, see our guides to Solar panels and New boiler, the latter if you are comparing a heat pump with a new gas boiler.
This article covers announcements as reported on 29 October 2026. Final scheme rules and legislation may differ, so check the government's guidance before you commit.