Annex VII – Charities: Affordable Home Ownership – Charitable Status and Tax
Charities: Affordable Home Ownership – Charitable Status and Tax
VII.1 Introduction
VII.1.1 In June 2008 joint guidance on the Charitable Status and Tax implications for Affordable Home Ownership was issued by HMRC, the Charity Commission and the Housing Corporation. The full guidance can be found on the Charity Commission website.
It gives charity trustees, including the boards of Registered Social Landlords (RSLs), general information and advice on the corporation tax consequences of providing charitable shared-ownership housing.
VII.2 Primary & Non-Primary Purpose Trading
VII.2.1 Trustees must be aware of the differences between trading that promotes their charitable purposes (primary purpose trading), for example providing low cost homes for their charity’s beneficiaries, and trading, such as selling homes on the open market, which does not further a charitable purpose and creates a tax liability (non-primary purpose trading).
VII.2.2 Trustees of charitable RSLs have a responsibility to:
- Identify the non-primary purpose trading which their charity is carrying out.
- Properly apportion income and expenses to it.
- Make a return to HMRC under Corporation Tax Self Assessment of any profits arising from non-primary purpose trading.
VII.3 Clearance by HMRC
VII.3.1 Before undertaking any housing development, RSLs need to be as certain as possible about whether sales are likely to be treated as primary purpose or non-primary purpose trading. For smaller and more straightforward developments, this should be obvious. But HMRC recognises that some social housing developments are big, financially complex, or take a long time to come to fruition, for example because of land assembly or planning discussions.
VII.3.2 In these exceptional cases, RSLs may want reassurance about the likely tax position, either at an early stage or if the scope of the development changes, to help inform their decisions. HMRC form CAR1 should be used to request advice on the application of section 505(1)(e) or section 505(1B) ICTA1988 i.e. on whether the sales constitute taxable non-primary purpose trading.
VII.3.3 This clearance process is not intended to apply to every scheme, but provides certainty in those few cases where there is serious doubt whether an intended activity is charitable.
VII.3.4 Any advice given in response to these requests is governed by HMRC’s Code of Practice 10.
VII.3.5 This is a formal clearance process and you can rely on the advice of HMRC; provided that the application for advice sets out all the relevant facts and draws attention to all the relevant issues. ‘Relevance’ should be taken to include any transactions related to, or consequent on, the transaction in question.
