The October 2026 electricity VAT cut removes VAT from household electricity bills on 1 October. The rate goes from 5 percent to zero. Gas keeps its 5 percent, and that split is the part worth paying attention to, because it is the first time a UK tax change has treated electric heating better than gas heating. It is also smaller than the headline, and it has not happened yet.
What was announced
The government confirmed on 21 July 2026 that VAT on domestic electricity falls from 5 percent to zero from 1 October. Ofgem puts that at around £45 off the yearly price cap for a typical home. It costs about £850 million this financial year, funded by cancelling the Digital ID programme. It covers Great Britain but not Northern Ireland, where EU VAT rules still apply under the Windsor Framework, so the Executive there receives comparable funding instead.
Gas was not included. Domestic gas keeps its 5 percent VAT.
Why the split matters more than the £45
Whether a heat pump costs less to run than a gas boiler comes down to one number: how many times more expensive electricity is than gas, per unit. A heat pump is about three times more efficient than a boiler, so that ratio has to fall below roughly three to four before the efficiency wins.
Every previous move in that ratio came from the gas side. When the July 2026 cap narrowed it from about 4.3 to about 3.6, that was gas getting 28 percent dearer, not electricity getting cheaper. We wrote it up at the time and had to be blunt: nobody’s bills fell.
This is the first move in the other direction. Taking 5 percent off electricity and leaving gas alone shifts the ratio about 5 percent in the heat pump’s favour, and it does that without anyone’s gas bill going up first.
What it is worth in your house
Removing 5 percent VAT from a price that already includes it saves you about one twenty-first of the bill, or 4.8 percent. That applies to your unit rate and your standing charge alike.
So the saving scales with how much electricity you buy. Ofgem’s £45 describes a typical home. A house heated by a heat pump is not a typical home, because it has traded a gas bill for a larger electricity one. On Energy Saving Trust’s standard efficiency assumption of 3.0, and typical UK heat demand, that is roughly 6,500 kilowatt-hours a year rather than 2,700, which puts the saving nearer £90.
VAT saving a year · from 1 October 2026
The cut is worth about 4.8 percent of your electricity bill. A heat-pumped home buys more electricity, so it keeps more.
- Typical home
- £45Ofgem figure
- Home heated by a heat pump
- £90HeatPass estimate
That £90 is our derivation, not an official figure. It is also not extra money on top of a gas saving, because a heat pump home has no gas bill left to save on. It is just that 4.8 percent of a bigger bill is a bigger number.
The levies are the bigger number
UK electricity is expensive relative to gas because of what is loaded onto it, and most of that is not VAT. The policy levies that fund social and environmental schemes sit almost entirely on electricity bills and barely touch gas. VAT is the small, visible part of a much larger imbalance.
Nesta argues the UK ratio needs to reach about 2.5 before a heat pump at standard efficiency reaches lifetime cost parity with a gas boiler. Today it sits at about 3.56. A 5 percent improvement does not close that. France runs nearer 1.7, and the distance between there and here is structural rather than a line on a VAT return.
So it is a real step, and a small one. Closing the rest of that gap means dealing with the levies, not the VAT line.
The caveats
It has not started. The cut applies from 1 October, so bills between now and then are unchanged.
It is temporary. The government has funded it for this financial year and said any extension gets decided at the Autumn Budget. Tax commentary reads it as a six-month measure running to 31 March 2027, though the announcement itself gives no end date.
The real number is not knowable yet. Ofgem publishes cap rates with VAT already inside them, and the October cap is due around 26 August. The zero rate will already be sitting in whatever it announces, so what we have today is a direction rather than a figure. We will write up the actual ratio when the cap lands.
And it does not apply in Northern Ireland.
What to do about it
Very little, honestly. A 4.8 percent cut to your electricity bill from October is not a reason to change a heating decision or to rush an install. What it does is move the running-cost case for a heat pump slightly the right way.
If you want the maths on why the electricity-to-gas ratio is the number that decides all this, it is in our running-costs guide. And if you want the figure for your own house rather than a standard one, a HeatPass check runs it in about two minutes.
It is a small change, and it arrived the right way round. That has not happened before.