We are a non charitable RP, are there any SDLT reliefs we can claim?
Yes. Three related reliefs under section 71 Finance Act 2003 are targeted at registered providers:
- public subsidy relief,
- purchase from qualifying body relief and
- control by tenants relief.
Under the first – public subsidy relief – the purchaser must be a registered provider, whether profit-making or not and the purchase must be “… funded with the assistance of a public subsidy.”
Public subsidy is defined as either a distribution under s25 National Lottery etc. Act 1993 or grant under s18 Housing Act 1996 (social housing grant), s126 Housing Grants, Construction and Regeneration Act 1996 or s19 Housing and Regeneration Act 2008 (plus their Scottish and Northern Irish variants).
According to HMRC’s own internal guidance, “the transaction does not have to be fully funded with the subsidy,” which raises the question of what constitutes funding by public subsidy? For example would a £1m purchase funded by £1 of public subsidy and £999,999 of borrowed money qualify? One suspects not. If the RP’s accounts identify public subsidy as one of the sources of funding that ought to be sufficient. But for how long? If legal completion, using public subsidy were to happen on December 1st, would refinancing using borrowed money on December 15th, debar a claim to public subsidy relief? Probably not, in our view, but the position might be different if the substitute funding had been planned at the outset.
To claim the second – qualifying vendor relief – it is simply necessary for the vendor to be one of the following qualifying bodies and for the purchaser to be an RP. The qualifying bodies are: (a) non-profit registered providers of social housing or registered social landlords, (b) housing action trusts and (c) local authorities.
The third – control by tenants relief – is even simpler, but sadly not available to many RPs. The purchasing ROP must be controlled by it tenants. The source of funding and the identity of the vendor are both irrelevant. Section 71 has details about what constitutes control.
Also available to RPs, although not specifically targeted at them are group relief and multiple dwelling relief (“MDR”). Group relief requires both the vendor and purchaser to be members of the same group of companies and is subject to numerous other conditions. Multiple dwelling relief is available where more than one dwelling is acquired and works by reducing the SDLT rate to the rate applicable to the average purchase price of all the dwellings, rather than that applicable to the total price paid. Both these reliefs are subject to possible withdrawal. The relief may be lost if the wrong sort of events or circumstances occur in the ensuing three years following the date of the transaction.
We are a charitable organisation, are there any reliefs we can claim?
Charity relief is available to all land acquisitions by charities provided three conditions are met. The first two are that the purchaser must be a charity and that the transaction must not be entered into for the purpose of avoiding SDLT. The third condition is more complex.The charity must intend to hold the whole of the property either for use in furtherance of its charitable purposes or as an investment, the profits of which are to be used for its charitable purposes.
The charity must intend to hold the property for the relevant purposes. Schedule 8 of the Finance Act 2003 does not stipulate precisely when the intention must be formed or, once formed, how long it must last. It seems clear that the intention must be formed before the property is transferred and must endure at least until the transfer happens or perhaps until the SDLT return is filed with HMRC. A later change of intention seems not to matter unless the change of intention gives rise to a “disqualifying event” that occurs within three years after the transfer on which charity relief was claimed.
Disqualifying events are defined as either the purchaser ceasing to be established for charitable purposes only or the property being used or held for non-charitable purposes. If a disqualifying event occurs during the three year period, the relief is lost and SDLT must be paid and a further SDLT return filed. It is important to do this with 30 days after the disqualifying event happens, otherwise interest and penalties become payable.
Charity relief can also be claimed if charity only intends to hold “the greater part” of the property for charitable purposes. HMRC, without any statutory authority, asserts that this means the greater part (i.e. more than 50%) by value rather than by area. However there is an important distinction between intending to hold the whole and intending to hold only the greater part. If the intention was to hold the whole, a disposal of the property during the three year period is not a disqualifying event. If the original intention was only to hold the greater part, then a disposal by the charity during the three year period is a disqualifying event.
At present HMRC is resisting claims for charity relief where a charity buys land jointly with a non-charitable partner, e.g. a developer. However we understand that this issue is being litigated in the context of an employee shared equity scheme run by a charity. Although a decision in favour of the taxpayer is thought to have been reached in the Lower Tribunal, the decision is being re-litigated for technical procedural reasons and is expected to be heard in the Upper Tribunal in 2012.
Due to our 2015 Framework Contract with the HCA, we are unable to use grant funding in section 106 acquisitions. What effect does this have on our ability to claim SDLT relief?
Unfortunately this means that you cannot claim public subsidy relief, but you will be able to claim if the vendor is a qualifying vendor. Charity relief will also be available if you are a charity and the other conditions are satisfied. MDR may also be available if charity relief is not.
We have wrongly claimed a relief, what do we do now?
The maximum penalty for getting an SDLT return wrong equals the SDLT that was not paid. Thus, on maximum penalty, a taxpayer might face a liability equal to twice the SDLT due, composed of the ordinary liability itself and a penalty of the same amount again.However, the penalty regime now distinguishes between “careless errors” “deliberate errors” and “deliberate errors that the taxpayer attempts to conceal”. If a taxpayer makes a full and unprompted disclosure of an error as soon as practical after discovering the error; the penalty may be reduced to zero.
Legal advice should be taken as soon as the error comes to light to ensure that the new return is itself correct and the error disclosed is explained in the least unfavourable way. Obviously the sooner the error is corrected, the less the interest charge will be.
For further information, please contact Andrew Campbell