On the money

It now looks almost certain that a law will be passed later this month giving charities partial relief from stamp duty land tax. That’s good news for charitable housing associations because it will significantly reduce their tax liability on certain typical transactions, but some problems remain.

The introduction of SDLT last December radically changed the tax position for charitable housing associations claiming relief from duty on land purchases because of their charitable status. Just being charitable was not enough: there had to be an intention to hold onto the land to further the association’s charitable purposes.

This meant that if an association had plans, before acquiring a property, to sell any part of it apart from by way of shared-ownership leases, charities relief would not be available – regardless of what proportion of the property was earmarked for disposal.

Unless another relief was available – for example, when buying a property in a disadvantaged area, buying from a local authority or a registered social landlord, or buying with the aid of grant – SDLT would be payable on the whole price at up to 4%.

The associations particularly affected by this were those buying sites where homes for market sale were to be built to cross-subsidise the affordable element, where there was a commercial element to be disposed of or where part was to be sold on to another association (HT 7 May, page 14).

However, ministers have now agreed that a last-minute amendment should be made to this year’s Finance Bill to provide for “partial charities relief”. Under these provisions, if a purchasing charity intends to sell on part of the property or use part for something that is not in furtherance of its charitable purposes, relief from duty can still be claimed – provided the charity intends to hold more than 50% of the site for its charitable purposes, such as general-needs renting, shared-ownership disposals or its own occupation.

The benefit to cashflow of delaying payment of duty on the non-charitable parts of a site is particularly attractive

What’s more, relief can initially be claimed on the whole purchase price. Tax will then be “clawed back” in relation to any parts of the property that are sold on within three years of acquisition at rates of up to 4%, depending on the purchase price for the whole site.

Assuming that no difficulties are encountered in the House of Lords, these new provisions will take effect from the date of royal assent on this year’s Finance Act, which should be before the end of this month.

They will be warmly welcomed throughout the charitable association sector. The benefit to cashflow of being able to delay paying duty on the non-charitable parts of a site until they are disposed of is particularly attractive.

However, although it will have to be accepted that duty will be payable on the part of a site developed as a shop or as homes for sale on the open market, what about the common situation where a charitable association is developing part of a site on behalf of a smaller, black and minority-ethnic association? The latter association will be able to claim relief from SDLT on its purchase, but the developer association may have charities relief clawed back even though the BME association will be putting the property to charitable uses.

A case of the Inland Revenue unintentionally taking away with one hand what has been given by the other, perhaps?