SDLTM27510 - Reliefs: supplementary Information FA03/S71

Public subsidy de-minimis

There is no minimum amount of public subsidy required in funding the transaction for the exemption to apply. It is however necessary for the public subsidy to be a grant, or other financial assistance, from the list at SDLTM27500 and must be available for use in assisting the funding of the land transaction. Where funding is purely for development costs, such as the development of new housing stock, the exemption will not apply to the land transaction itself.

Timing of public subsidy

HMRC accept that S71 can apply where a grant or other financial assistance to be used for land transactions has been approved but not yet paid to the purchaser.

Where the purchaser enters into a land transaction with a reasonable expectation that the grant, or other financial assistance, will be made available to them (but it has not yet been approved or secured), they may also file their land transaction return on the basis that the exemption applies and enter code 23 on their return.

It will be up to the purchaser to record and maintain any records which support the purchaser’s position and suggest that a grant or other financial assistance would be made available for a particular transaction where the exemption is said to apply.

A purchaser will also need to maintain an audit trail of how any grant or other financial assistance is eventually allocated to a particular transaction or transactions.

Recycled Subsidy

Where a public subsidy is granted, there are certain conditions that can apply to how that subsidy is to be used. This may include a requirement to repay the subsidy on the disposal of housing acquired with that subsidy.

A relevant housing provider may enter into agreement with the government department responsible for granting that subsidy to allow on the disposal of such housing, to instead recycle that subsidy to be used to acquire new housing.

Land transactions entered into which are funded with the assistance of that recycled grant will be treated as being funded with the assistance of a public subsidy where that subsidy falls within the list of public subsidies in (FA03/S71)

Transferred Subsidies

In principle, HMRC will accept that

  • where the liability and burden of an existing public subsidy (i.e. to repay it) is taken on by the purchaser as part of the consideration for a land transaction,
  • the purchaser is also a registered provider of social housing
  • the original acquisition of the property now being sold by the vendor to the purchaser was one that qualified as exempt under s71, and
  • the vendor previously utilised a public subsidy (and was one listed in s71(4) (see SDLTM27500)) when they acquired the property,

then the exemption conferred by S71 can still apply and code “23” should be used in the return.

HMRC will also accept in principle where a grant is given to a local authority under Section 31 Local Government Act 2003 (“LGA 2003”). The local authority then transfers that grant directly onto a third party such as a registered provider of social housing who uses that grant to acquire property for the provision of social housing. The registered provider as purchaser will need to retain evidence to show that the transaction was funded with the financial assistance of that s31 LGA 2003 grant.

As each case will be fact dependent, a purchaser should seek non-statutory clearance from HMRC on the matter in cases where there is uncertainty.

Example

A profit-making registered provider of social housing (PM RSL) is planning to purchase 10 dwellings from a non-profit registered provider of social housing (NP RSL). Originally, NP RSL acquired the 10 houses with the assistance of a public subsidy and the exemption of s71 applied; the public subsidy was worth £400,000. The public subsidy comes with a number of conditions, including repayment to the grantor of the public subsidy in certain circumstances.

The 10 dwellings are now worth £2 million. PM RSL offers to pay NP RSL £1.6 million and take on the liability of £400,000 for the previously used public subsidy. The original grantor of the public subsidy accepts this proposal too. NP RSL agrees to the offer and sells to PM RSL.

PM RSL’s transaction will be exempt under s71 because the transaction has been funded with the assistance of a public subsidy; the price paid to NP RSL for the 10 dwellings reflects the fact that the public subsidy, and its liability, has been taken on.