On 1 November 2022, HMRC published updated guidance on the stamp duty land tax (SDLT) exemption for acquisitions of land by registered providers (RPs) where certain conditions are met. The most common scenario in which an RP (whether non-profit or profit-making) can claim the benefit of this exemption is where the acquisition is “funded with the assistance of a public subsidy”. Among other things, the revised guidance provides a number of (helpful) clarifications of HMRC’s view on the operation of this test, and in one case, arguably expands the circumstances in which it had previously been understood that the relief can be claimed. We take a closer look at the changes below, and comment on the impact for RPs looking to claim this important relief.
Background and exemption conditions
Acquisitions of land and buildings in England and Northern Ireland by non-profit and profit-making RPs are exempt from SDLT where the purchase is “funded with the assistance of a public subsidy” (section 71(A1) and (1)(c) Finance Act 2003).
A public subsidy means any grant or financial assistance under a number of statutory provisions, or made by certain public bodies, as set out in the legislation (section 71(4) Finance Act 2003). These include section 18 of the Housing and Regeneration Act 2008, the statutory provision under which Homes England makes affordable homes grants to RPs.
There are two other circumstances in which the exemption applies, although only to non-profit RPs. These are where: (a) the purchaser is controlled by its tenants; or (b) the vendor is a “qualifying body” (most commonly, another non-profit registered provider or a local authority).
The exemption must be claimed in a land transaction return using Code “23”.
Many non-profit RPs will, of course, be charities, and it will potentially be open to them to claim charities relief where the land is to be held for qualifying charitable purposes. However, charities relief can be withdrawn in certain scenarios, and may not even be available in the first place if the greater part of land acquired is to be used for private sale. RP relief does not have any clawback provisions, or limitations on use of land, so provided one of the conditions is met (most commonly, the public subsidy condition), it is preferable to claim RP relief.
It is therefore worth taking the time to consider the changes to HMRC’s guidance and how this may affect RP relief working in practice.
Changes to HMRC guidance (SDLTM27500 & 27510)
Status of local authorities
The first change is that HMRC now explicitly states in its Manuals that it regards a local authority RP to be non-profit making for the purposes of these rules. There was some technical doubt about this since the list of registered providers maintained by the Regulator designated RPs as “Profit”, “Non-profit” or “Local authority” – but HMRC confirms that since local authorities are “inherently non-profit by nature”, they are to be treated as such and therefore can access the additional categories of exemptions available to non-profit RPs.
This has always been our understanding of HMRC’s position, and this is certainly how the rules have generally been applied in practice. But it is nonetheless helpful to have this confirmed in guidance.
Public subsidy condition
The other changes to the guidance relate to the circumstances in which the public subsidy condition applies.
First, HMRC state that there is no minimum amount of public subsidy required, provided it is available for use in assisting the funding of the land purchase (as opposed to, say, the development of new housing stock).
This is essentially a statement of the law, so does not really add anything new.
Second, HMRC confirm that the exemption can apply where the grant has been approved but not yet paid, and also where there is a “reasonable expectation” that the grant will be made available. HMRC also note the importance of maintaining records/audit trails to support the position adopted and to evidence how grant funding is eventually allocated to particular transactions.
Given that strategic grant agreements with Homes England and the GLA prohibit drawdowns in advance of need, this is necessarily how the relief has operated in practice, but it is of comfort to RPs to see this in black-and-white in HMRC’s guidance. RPs should take note of the need to maintain records in case of an HMRC enquiry.
Third, HMRC say that where an RP would otherwise be obliged to repay a subsidy on disposing of housing, but it is permitted to roll the grant into a new purchase, this recycled grant (e.g. RCGF monies) will be treated as qualifying funding for the purposes of the exemption.
Again, this was something that was already regarded as falling within the rules, but the confirmation of the position is helpful.
Transferred subsidies (SDLTM27510)
The fourth, and perhaps most significant, change is that HMRC consider transactions that involve a buyer assuming the burden of repaying an existing public subsidy are capable of qualifying for the exemption if certain conditions are met.
Those conditions are:
- that the purchaser assumes the liability to repay an existing public subsidy as part of the consideration for a land transaction;
- the purchaser is also an RP;
- the original acquisition of the property now being sold qualified for the RP exemption; and
- the vendor previously utilised a public subsidy (included in the statutory list) when they acquired the property.
At first glance, the statutory basis for this proposition is hard to discern – in particular, the conditions listed above are HMRC’s, not from the legislation. But having said that, if the cash price paid by purchaser for the land is reduced to the extent of the transferring subsidy, then from a policy perspective it seems fair that relief ought to be available, and HMRC seem to have concluded that this is what Parliament intended.
This is likely to be a significant benefit to for-profit RPs purchasing portfolios of social housing from an RP (a non-profit RP would be able to rely on the “qualifying body” exemption referred to above since it would be acquiring from another RP).
With the emergence of a greater number of for-profit RPs with limited development resource looking to rapidly increase the level of their stock, transactions structured in this way are becoming more common. WS recently acted for G15 housing association Optivo on such a transaction, namely the ground-breaking £106m partnership with Sage Housing. Under that deal, Sage (a for-profit social housing provider owned by private equity firm Blackstone) will purchase 420 grant funded homes across London and the South East and assume liability for repaying the Homes England and GLA grant allocated to the properties.
Although for the most part the updated guidance reaffirms what has been the generally accepted position dating back to when SDLT was introduced, it is nevertheless welcome. In particular it confirms that local authorities are organisations entitled to claim RP relief, provides reassurance for non-profit RPs in choosing to utilise RP relief in preference to charities relief and confirms the availability of relief from SDLT for for-profit RPs (and therefore a level playing field) when purchasing grant funded homes from another RP.