Housing co-operatives: new reliefs from Annual Tax on Enveloped Dwellings and Stamp Duty Land Tax

HMRC has announced two new tax reliefs for housing co-operatives.

New tax relief details.

This is welcome news that should allow many co-ops to realise considerable savings in both start-up costs and ongoing expenses.

Annual Tax on Enveloped Dwellings (ATED) is a yearly charge levied on residential property in the UK where such property is valued at over £500,000 and held by a company (including corporate bodies such as co-operatives), a partnership with any company members, or a collective investment scheme.  A 15% flat rate of Stamp Duty Land Tax (SDLT) is also charged at the point of acquisition when entities of this type purchase residential property in England and Northern Ireland with a value of over £500,000.

Both ATED and the 15% SDLT rate were introduced to act as a disincentive to individuals purchasing residential property through corporate vehicles for the purposes of avoiding tax.  Unfortunately, the way in which the relevant legislative provisions are drafted has resulted in many community-led housing groups also being inadvertently caught by these anti-avoidance measures.

Co-ops have been particularly adversely affected due to the nature of the properties they acquire. Consequently, Wrigleys communicated these concerns to the Treasury to have these provisions revised and encouraged community led housing groups to do the same, and we are delighted that these efforts have been successful.

The relief from the ATED charge will apply retrospectively from 1 April 2020, meaning that qualifying co-ops will be able to claim a refund for the 2020-2021 chargeable period as well as claiming relief for subsequent chargeable periods.

The SDLT relief will apply to acquisitions with an effective date (usually the date of completion) on or after the Autumn Budget Day 2020.

To be eligible for the reliefs a housing co-operative will need to:

1) be registered by the Financial Conduct Authority under the Co-operative and Community Benefit Societies Act 2014;

2) fall within the definition of a co-operative housing association provided in the Housing Associations Act 1985; and

3) have rules which prevent members from transferring their membership or share capital.

It appears, therefore, that cohousing companies set up on a co-operative basis under the Companies Act 2006 will be ineligible for the reliefs, so this may be an important consideration for new groups considering their community-led housing structure.