Stamp duty rule to ramp up cost of mixed-tenure projects

Building mixed-tenure schemes is to cost charitable housing associations hundreds of thousands of pounds more after a tax ruling last week.

The Inland Revenue has decided that charitable associations must pay full stamp duty land tax when they buy plots for development that will include homes for outright sale. Previously, such charities, which make up about three-quarters of all registered social landlords, did not have to pay this duty.

Stamp duty land tax is levied as a percentage of the land price up to a maximum of 4% for purchases of more than £500,000 – a £30m scheme would therefore attract £1.2m of stamp duty land tax, for example.

The new ruling stems from the 2003 Finance Act, which introduced the stamp duty land tax and set out which land uses qualified for relief.

A spokesman for the Inland Revenue said: "Charities' relief from stamp duty land tax is not available where a charity purchases land and intends to sell part of it on, or to develop part of it for sale. Basically it must intend to use the land itself – for example, as its own offices – or to hold it as an investment by renting it out.

"Selling the land is not on the list of permissible intentions."

He confirmed that associations cannot get relief on the portion of land being used for social housing when other parts of the land will be used for outright sale homes unless RSLs can separate the two areas of outright sale and social housing they will have to pay stamp duty on the whole site.

The Inland Revenue will also be able to claim stamp duty land tax within three years of the sale if a plot previously used for charitable purposes is used for a non-charitable purpose.

Lynne Murray, social housing partner at solicitor Lewis Silkin, said the ruling could affect associations that were land banking: "Associations that are land-banking might not know, at the point they buy, which part of the land they use for social housing and which for sale."

The confirmation from the Inland Revenue comes after two sets of lawyers and tax consultants received conflicting advice from different Revenue advisers on whether charitable associations had to pay the tax when they bought plots to accommodate homes for sale.

Lawyers for the National Housing Federation are seeking clarification from the Inland Revenue on whether other types of property will be taxable. Charlie Proddow, property partner at Devonshires, said the firm was asking whether schemes combining affordable rented housing with shared ownership would be eligible for stamp duty.

He said he was also enquiring about whether stamp duty had to be paid on commercial leases, selling part of a site to another RSL, the disposal of units as part of the Homebuy scheme or Starter Home Initiative, or freehold or long leasehold disposal of commercial units.