Calculate the benefits

As of 1 April, there have been a number of changes to the tax system, which registered social housing providers need to be aware of. Specifically, housing associations may now wish to consider whether one or more of their profit making subsidiaries should voluntarily register with the Tenant Services Authority as a ‘for profit’ registered provider in order to reap significant tax benefits.

The changes

Changes have been made across the whole range of property taxes including stamp duty land tax, value added tax, and the community infrastructure levy. By creating a level playing field for both not-for-profit and profit making registered providers, these changes follow the wider political agenda of opening-up the social housing sector to new entrants.

Stamp duty land tax

Registered providers are now able to claim relief from SDLT on the acquisition of a property where the transaction is funded with the assistance of public subsidy. This represents a widening of the scope of the relief to include, for example, a registered provider which is a private developer. Unusually for SDLT relief, there are no strings attached and no claw-back, so this relief is definitely worth claiming if available.

Typically, when the not-for-profit parent registered provider purchases land for mixed use development, it will transfer the non-charitable elements to its profit making subsidiaries. The charitable parent will inevitably suffer some irrecoverable VAT, and the profit making subsidiary may well be required to pay SDLT on the acquisition (as stamp duty land tax group relief for such transfers is often not available owing to the complex anti-avoidance provisions).

Value added tax

From a VAT perspective, the transfer to the parent could easily be made zero-rated for VAT purposes (and thus avoid irrecoverable VAT) by ensuring the timing of the transfer takes place when the social rented units are ‘in the course of construction’.

As a consequence of the changes, the acquisition by a profit making subsidiary which is a registered provider will be relieved from SDLT where it has secured social housing grant.

Two VAT reliefs were also extended to include both not-for-profit and profit making registered providers on 1 April.

The first, concerns the right of a housing association to disapply the option to tax when acquiring land from a developer. This rule recognises that housing associations were generally unable to recover much of the VAT charged to them - although this right has been restricted in recent years to prevent a housing association disapplying the option after a price has been fixed. However, now both non-profit and profit making registered providers enjoy this same right.

Second, housing associations (unlike private developers) have historically been able to pay no VAT upon the receipt of services involved in converting a non-residential building into dwellings. Profit making providers of social housing which are willing to register with the TSA can now benefit from the same VAT treatment.

This relief will be very useful where a profit-making registered provider is converting an industrial building to dwellings, which it intends to use for intermediate rent, as any input VAT incurred on the purchase of the land and the conversion of the buildings would otherwise be irrecoverable. It would therefore make sense to reduce as far as possible any up-front VAT costs.

Community infrastructure levy

It is also worth noting that the community infrastructure levy regulations which came into force on 6 April provide for both social housing relief and charitable relief.

The social housing relief is available for both not-for-profit and profit making registered providers which are the owner of ‘qualifying dwellings’. For these purposes, ‘a qualifying dwelling’ includes intermediate rent and housing let on shared ownership terms.

A profit making registered provider providing intermediate rent or undertaking some shared ownership is entitled to claim relief against the whole of the CIL liability. However, in order to claim the relief, the registered provider must submit the claim and must have received notification of the outcome of their claim before commencement of the works, otherwise eligibility for the relief is lost.

Conclusion

In the current climate when capital grant is likely to be reduced and taxes are likely to be higher, it seems like an appropriate time for housing associations to review their group structures and consider whether it would be more tax efficient to voluntarily register a profit making subsidiary with the TSA to take full advantage of any available tax reliefs.

Kate Silverman is a social housing lawyer at TLT. Philip Alfandary is a corporate tax partner at TLT
kate.silverman@tltsolicitors
philip.alfandary@tltsolicitors

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