On the basis of legislation and published HMRC guidance, there has been a lack of clarity for registered providers regarding the application of the section 71 relief to local authorities and around the nature and timing of a public subsidy.
Section 71 provides an exemption for land transactions, where the purchaser is a profit-making registered provider of social housing, if the transaction is funded with the assistance of a public subsidy.
Additionally, a land transaction where the purchaser is a relevant housing provider is exempt if:
Under section 71, a relevant housing provider means a non-profit registered provider of social housing or a registered social landlord.
Recent updates provide more details of legislative intention. During October and November 2022, HMRC guidance was updated to cover a number of scenarios:
Local authorities are treated as non-profit bodies for section 71, where they are treated as a relevant housing provider and can qualify for relief under section 71
The Regulator of Social Housing maintains the list of registered providers of social housing and designates the provider’s status as “Profit”, “Non-profit” or “Local authority”. HMRC’s view is that local authorities are inherently non-profit by nature and therefore a local authority which is included on the list of registered providers is a non-profit registered provider for the purposes of section 71.
If a public subsidy is used to fund purely development costs, the relief would not be available
The public subsidy must be a grant or other financial assistance, and there is a published list in the HMRC guidance. Additionally, the public subsidy must be available for use to assist the funding of the land transaction. However, HMRC note that where funding is purely for development costs, for example the development of new housing stock, the exemption will not apply to the land transaction.
Timing – the subsidy does not need to be given prior to the transaction, as long as there is a reasonable expectation that it would be made available
Regarding the timing of the subsidy, where there is a reasonable expectation of the funding, the taxpayer can file the tax return on the basis that the exemption applies and enter code 23 on the return. The purchaser will need to record and maintain any records to support their position and will also need to maintain an audit trail of how any grant or other financial assistance is eventually allocated to the particular transactions.
The public subsidy does not need to fully fund the purchase where partial funding is sufficient and there is not a de minimis threshold
The public subsidy may typically include conditions for repayment on an ultimate disposal of the housing which was acquired with that subsidy. However, where the subsidy is recycled to acquire new housing, these subsequent land transactions will also be exempt if the subsidy falls within the published list in section 71.
Transfer of subsidy – if the burden is taken on by the transferee it should qualify
Where a registered provider of social housing is purchasing property and taking on the burden of part or all of an existing public subsidy, then the exemption can be claimed, and code 23 used in the return. To make this claim the vendor must have claimed the section 71 exemption on the original acquisition.
We welcome these updates which remove a number of common uncertainties which have hindered taxpayers when debating whether to make a claim for exemption under section 71.
RSM is a leading provider of audit, tax and consulting services, with around 3,800 partners and staff in the UK. We're working with our tax advisors RSM to help shape government policy on taxation as it affects the sector and to keep housing associations informed of key issues.Find out more