CTM40440 - Particular bodies: housing associations: co-operatives - disqualifying letting
ICTA88/S488 (10)
A housing association (CTM40405) may be disqualified from relief under ICTA88/S488 (CTM40420) if there is letting:
- by the association to non-members,
or
- by a member to a non-member.
In the case of (a) above, the association should be asked for an explanation if, as is likely, such letting is not permitted by its rules. A report should then be made to CTIAA (Technical) to include an estimate of the probable Schedule A liability arising on the rents from non-members.
In the case of (b) above, the official letter of approval issued to the association (CTM40425) specifies the limited extent to which sub-letting by members will be permitted. If this limit is exceeded advice should be sought from CTIAA (Technical).
Where it is agreed that the requirements of Section 488 (10) have been substantially complied with the rents from non-members will be taxable under the normal rules of Schedule A. The interest paid in respect of a property let to a non-member will not be within Section 488 (1)(b) but, for accounting periods ending before 1 April 1996, it will qualify for relief as a charge within ICTA88/S486 (1)(b). For accounting periods ending on or after 1 April 1996, interest is no longer dealt with as a charge but under the loan relationship provisions. Relief for interest payable is therefore available as a Case III debit.
Where the mortgage was within MIRAS, it could remain in MIRAS again provided that the Section 488 (10) requirements are met. However, because the mortgage would still be within MIRAS, it is necessary to restrict relief claimed by the association under Section 486 (1)(b) to take account of tax relief already given at source. Any difficulties in agreeing the amount of restriction should be referred to CTIAA (Technical).
