Tax guidance threatens low-cost homes
The umbrella body for housing associations has warned that extra costs will be piled on them following the publication of guidance setting out when low-cost home ownership should be taxed.
Affordable home ownership – charitable status and tax, published jointly by the Charity Commission, HM Revenue and Customs and the Housing Corporation, is designed to iron out confusion between trading for charitable purposes and business that is not deemed charitable, and therefore liable for tax.
The guidance warns that providing affordable homes to the eligible groups set out by the government is not necessarily charitable activity, particularly since the extension of its Homebuy scheme to all first-time buyer households earning £60,000 or less.
The document identifies several charitable purposes for low-cost home ownership, such as relieving housing need, serving the needs of those who are elderly and disabled, promoting regeneration in deprived areas or providing housing for those meeting community needs, such as teachers or nurses.
Before carrying out any development, associations need to be certain whether sales are likely to be treated as charitable or not and seek formal advice from HMRC. Any failure to do so may be regarded as evasion.
The guidance settles months of wrangling between the government and the National Housing Federation, which warned last year that associations will miss their target of boosting low-cost home ownership homes by 25,000 a year by 2010/11 unless tax is waived.
Federation policy leader Nick Powell said: ‘We lobbied for some time that grant-funded shared ownership, whether it’s charitable or non charitable, should be exempted from corporation tax. But they weren’t persuaded of our argument on this.
‘Housing associations will put in place subsidiaries and group arrangements in order to get around the tax issue, which will have a cost to it. That cost will ultimately result in less low-cost home ownership being provided.’