Guidance around the application of Land Transaction Tax in relation to charities relief.
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LTTA/7080 Charities relief
Relief from LTT is available where a qualifying charity, or a charitable trust, buys an interest in land, subject to certain conditions. Partial charities relief is also available where a qualifying charity buys property with a person who is not a charity.
There are also rules that provide for charities relief to be clawed back. This will occur if, within three years of the transaction, the qualifying charity ceases to be a qualifying charity or uses the property for purposes other than charitable ones. The same claw back rules and conditions also apply to charitable trusts. The relief is only withdrawn if the qualifying charity, or charitable trust, still owns the land at the time of the disqualifying event. However, if a qualifying charity or charitable trust disposes of land, which has been the subject of a claim to relief, within 3 years there is no clawback.
Partial relief available to both charities and charitable trusts where the conditions to claim full relief are not met, for example where the property is not wholly used for charitable purposes or where the buyers include both qualifying charities and a person who is not a charity.
LTTA/7081 Key terms
A ‘charity’ for the purposes of LTT draws on the UK definitions provided in Part 1 of Schedule 6 to the Finance Act 2010. Generally, a charity is one that is:
- a charity established and recognised as such in Wales, England, Scotland or Northern Ireland
- a charity established and recognised as such in an EU member state, or
- a charity established and recognised as such in Norway, Iceland or Liechtenstein.
Some charities, including churches, universities and colleges, either cannot register, or are not required to register, with the Charity Commissioners in England and Wales. They are, however, still charities.
A ‘disqualifying event’ occurs where a charity, which was a buyer in a land transaction that was the subject of a claim to charities relief, ceases to be established for charitable purposes, or the whole or part of the subject matter of the transaction, or any interest derived from it, ceases to be used or held for purposes that are not qualifying charitable purposes.
A ‘qualifying charity’ is one that intends to hold the whole of the subject matter of the transaction for qualifying charitable purposes and the charity is the only buyer. A charity is also a qualifying charity if it is one of a number of buyers, one or more of whom are not charities if the charity intends to hold the whole of its interest in the property for qualifying charitable purposes. Where a charity does not intend to hold the whole of the subject matter or the whole of its share in the subject matter for charitable purposes, the charity may be able to make a claim to partial charities relief. In these cases the legislation refers to the charity as ‘not a qualifying charity’.
A ‘qualifying charitable purpose’ is one that:
- furthers the purposes of the charity (or another charity), or
- is an investment the profits or gains of which are used for the charitable purposes of the charity.
A charitable purpose is defined in section 2 of the Charities Act 2011.
LTTA/7082 Charities relief
Relief from LTT is available for a buyer who is a qualifying charity or a charitable trust. Where more than one qualifying charity acquires a property jointly, charities relief will still be available on the acquisition. When completing the return, code 002 should be used where full relief is claimed (all consideration given is relieved) and code 052 where partial relief is claimed.
Qualifying Charity A (‘QCA’) has as its charitable purpose the provision of temporary accommodation for sufferers of domestic abuse. QCA buys a dwelling to provide accommodation to meet this charitable purpose. That transaction will meet the conditions for relief and a claim to full relief may be made by QCA.
Qualifying Charity B (‘QCB’) has as its charitable purpose research into a rare illness. QCB receives a very large bequest and chooses to buy an office block to generate an income which will be used to provide a regular income to fund further research into the illness. That transaction will meet the conditions for relief and a claim to full relief may be made by QCB.
Qualifying Charity C (‘QCC’) is a religion that meets the conditions of a qualifying charity. It acquires a dwelling for a celebrant of the religion to occupy in furtherance of the charitable purpose of the religion. This transaction will qualify for relief and a claim to full relief may be made by QCC.
Therefore where a church, mosque, synagogue, etc. provides a dwelling for a vicar, priest, imam, rabbi, etc. for occupation in the course of their duties, this would be considered as land being provided for charitable purposes. The role of the religious leader is to further the charitable purpose of the religion, for example to advance the religion through various pastoral, care, educational and administrative duties. Whilst not everything to do with religion is charitable, the advancement of religion is a charitable purpose.
LTTA/7083 Circumstances when relief is withdrawn
If within 3 years of the transaction for which charities relief was claimed (the relieved transaction), a disqualifying event occurs, then the relief, or an appropriate proportion of it, is withdrawn. The same applies if a disqualifying event occurs later but in pursuance of or in connection with arrangements made before the end of that period.
The qualifying charity must hold the chargeable interest at the time of the disqualifying event, or an interest derived from it, for relief to be withdrawn. This ensures that if the charity held the chargeable interest for qualifying charitable purposes the sale of that property within 3 years of its acquisition will not result in the relief being clawed back.
Where the conditions for the relief to be clawed back are met, then the relief granted, or an appropriate proportion of the relief, is withdrawn and LTT is chargeable. A taxpayer will need to make a further return to pay the LTT due.
The amount chargeable is the LTT which would have been chargeable in respect of the relieved transaction if charities relief had not been claimed or, as the case may be, an appropriate proportion of that LTT.
An appropriate proportion is calculated having regard to:
- what was acquired in the relieved transaction and is still held by the qualifying charity for charitable purposes, and
- what is being used or held for purposes that do not meet the conditions of qualifying charitable purposes.
Qualifying Charity C (‘QCC’) has as its charitable purpose, the alleviation of poverty. QCC buys a shop in order to let it to its trading arm. After 2 years the charity loses its charitable status. It is therefore no longer a qualifying charity. Whilst the acquisition of the shop would qualify for charities relief, once QCC is no longer a qualifying charity there is a disqualifying event and the relief must be withdrawn. The further return must be sent in within 30 days following the date that the disqualifying event occurred, that is the date that QCC lost its charitable status.
LTTA/7084 Charity is a qualifying charity: charity to hold the greater part of the land for charitable purposes
Where a charity or charitable trust is unable to claim relief on a land transaction:
- because it does not intend to hold the whole of the land for qualifying charitable purposes
- but it does intend to hold the greater part for such purposes
then the whole of the transaction can be relieved. Relief is provided in these circumstances as the charity is treated as if it were a qualifying charity.
The greater part means more than 50% of the monetary value of the property acquired in the transaction. This is to be valued on a just and reasonable basis.
If the charity disposes of part of that land or holds part of it for use other than for qualifying charitable purposes, a relevant portion of the relief will be clawed back and the charity is required to make a further return within 30 days following the date of the disposal or point at which the land is held for use other than for qualifying charitable purposes.
This ensures that the relief granted is in proportion to the share of the land retained and held by the charity in furtherance of its charitable aims.
The meaning of a disqualifying event, in these circumstances, therefore includes any transfer by the charity of:
- a major interest in the whole or any part of the subject matter of the relieved transaction, or
- any grant of a lease by the charity for a premium and rent of less than £1,000 per annum of the whole or part of the subject matter of the relieved transaction.
In both cases the date of the disqualifying event is the effective date of the relieved transaction.
The greater part relates to the monetary value of the part of the land disposed rather than the surface area.
Charity A (‘CA’) buys a 5 floor office block and intends to dispose of the top 3 floors following its acquisition. This intention exists at the time of acquisition. The ground and first floors are of greater value, even though the floors are all of equal size. The ground and first floors represent 55% of the total monetary value of the block with the remaining upper three floors representing 45%.
The charity would qualify for relief as it intended to hold the greater part, by value, of the land for qualifying charitable purposes. If this disposal occurs on the date of the relieved transaction then the return for that transaction must be made reflecting the fact that partial relief only is available for the transaction. Otherwise, when that disposal occurs there will be a need for a further return to be made to claw back the relief.
When there is a clawback, it is only in respect of the proportion that has been disposed of.
Charity B (‘CB’) buys a housing development with 10 equal residential units for a total of £1m with the intention to dispose of 3 of these units on the open market as soon as the acquisition has been made.
The charity would initially gain full LTT charity relief on the whole £1m purchase price. CB finds a single buyer for the 3 dwellings it wishes to dispose of.
When the charity disposes of the 3 units, a claw back of relief on the £300,000 apportioned value of the 3 units is made.
The clawback will be taxed at the rate appropriate to the whole initial consideration – the charity cannot claim multiple dwellings relief on the further return. As a result the LTT payable on the transaction absent the charities relief would be £38,500 (using the rates and bands in force at 1 April 2018 – (£150,000 at 0% = £0) + (£100,000 at 1% = £1,000) + (£750,000 at 5% = £37,500)) as the transaction can be treated as a non-residential transaction. The tax to be clawed back is therefore a percentage of the tax on the property initially acquired and the property disposed of. In this case that would be 300,000/1,000,000 x £38,500 = £11,500.
LTTA/7085 Joint purchase by qualifying charity and another person; partial relief
Where there are:
- 2 or more buyers in a land transaction
- the subject matter of that transaction is to be held as tenant in common, and
- one of the buyers is a qualifying charity and one of the buyers is a person who is not a qualifying charity
claims to partial relief on that acquisition are possible.
The LTT that would otherwise be chargeable on the land transaction is reduced by the relevant proportion of that amount. The relevant proportion is, in relation to the qualifying charity, the lower of:
- the proportion of the subject matter of the land transaction that is acquired by all the qualifying charities that are buyers under the transaction, this is known as P1, and
- the proportion of the chargeable consideration that is given by the qualifying charities under the transaction. This is known as P2.
A qualifying charity and 2 persons who are not charities or charitable trusts purchase a supermarket building as an investment property to generate income. The qualifying charity will use its proportion of the income to further its charitable purposes. The building costs £10,000,000 and the property will be owned equally and the property is funded equally. In this case P1 and P2 are the same proportion, with the charity acquiring a 1/3 interest in the building and funding 1/3 of the cost.
The LTT, absent any claim to relief, due (based on the LTT rates in force on 1 April 2018) is £578,500. The partial charities relief proportion applied to that LTT is 1/3. Therefore relief of £192,834 may be claimed, leaving £385,666 to be paid. All the buyers, including the charity, are jointly and severally liable for the payment of the tax.
LTTA/7086 Withdrawal of partial charities relief
In the event that a land transaction which was relieved under the partial charities relief rules becomes subject to a disqualifying event in relation to the qualifying charity, then the relief or an appropriate proportion of it, is withdrawn and tax will, accordingly, become chargeable.
The disqualifying event must occur within 3 years of the relieved transaction, that is, the transaction for which partial charities relief was claimed, or in carrying out, or in connection with, an arrangement entered into within that 3 year period a disqualifying event occurs the partial relief, or an appropriate proportion of it is withdrawn.
The qualifying charity must hold the chargeable interest at the time of the disqualifying event, or an interest derived from it, for relief to be withdrawn. This ensures that if the charity held the chargeable interest for qualifying charitable purposes the sale of that property within three years of its acquisition will not result in the relief being clawed back.
In transactions where there is a single qualifying charity involved in the transaction a disqualifying event will result in the total amount of the partial relief being withdrawn.
However, where there is more than one qualifying charity purchasing the property, the proportion of the relief to be withdrawn is dependent upon whether the P1 or P2 proportion was used to calculate the amount of partial relief in on the acquisition of the property. The formula for calculating the relief to be withdrawn is either:
p1 ÷ P1 x amount of partial relief claimed
p2 ÷ P2 x amount of partial relief claimed
In the first case p1 represents the proportion of the subject matter that was acquired by the charity that has triggered the disqualifying event and P1 represents the proportion of the subject matter acquired by all of the qualifying charities.
In the 2nd case p2 is the proportion of the chargeable consideration for the transaction given by the charity that triggered the disqualifying event and P2 represents the proportion of the chargeable consideration given by all of the qualifying charities.
2 qualifying charities and 2 persons who are not charities or charitable trusts purchase a building as an investment property to generate income. The qualifying charities will both use their proportion of the income to further their respective charitable purposes. The building costs £10,000,000 and the property will be owned equally and the property is funded equally. In this case P1 and P2 are the same proportion, with each charity acquiring a 1/4 interest in the building and funding 1/4 of the cost.
The LTT, absent any claim to relief, due (based on the LTT rates in force on 1 April 2018) is £578,500. The partial charities relief proportion applied to that LTT is one half (i.e. the 2 charities interests are aggregated for the purposes of establishing the partial relief. Therefore relief of £289,250 may be claimed, leaving £289,250 to be paid. All the buyers, including the charities, are jointly and severally liable for the payment of the tax.
Within 3 years of the transaction one of the qualifying charities triggers a disqualifying event. The amount of the partial relief that is withdrawn is using the p1/P1 formula:
0.25 ÷ 0.50 x 289,250 = £144,625
Or using the p2/P2 formula:
2,500,000 ÷ 5,000,000 x 289,250 = £144,625
LTTA/7087 Joint purchase by a charity that is not a qualifying charity: charity to hold the greater part of the land for charitable purposes
Partial relief may also be claimed where the charity and persons who are not charities acquire property together but the charity does not intend to use all of its interest in the property (but does intend to use the majority) for its qualifying charitable purposes. Where there are:
- 2 or more buyers in a land transaction who acquire the subject matter of that transaction as tenant in common
- the charity is not a qualifying charity
- the charity would, if it were a qualifying charity, be able to claim partial charities relief under the rules for the joint purchase by qualifying charity and another person, and
- the charity does intend to hold the greater part for qualifying charitable purposes.
The charity is to be treated as though it were a qualifying charity and the rules relating to the joint purchase by a qualifying charity partial relief, including the withdrawal of relief, rules will apply. However, a disqualifying event will also include the following, if not in the furtherance of the charity’s charitable purposes:
- any transfer by the charity of a major interest in the whole or any part of the subject matter of the relieved transactions, or
- any grant of a lease by the charity for a premium and rent of less than £1,000 per annum of the whole or part of the subject matter of the relieved transaction.
These rules effectively provide the same rules as for a charity that is not a qualifying charity but the charity is to hold the greater part of the land for charitable purposes.
LTTA/7088 Application of charities relief to charitable trusts
Relief and partial relief from LTT is available to charitable trusts on the acquisition of a chargeable interest, equally, the withdrawal of relief rules also apply to charitable trusts.
A charitable trust is one where all the beneficiaries of the trust are charities or all the unit holders of a unit trust are charities.
The rules that apply to qualifying charities apply to charitable trusts so that:
- references to the qualifying charitable purposes or charitable purposes of the charity are, in relation to the charitable trust, to the purposes of the beneficiaries or unit holders,, and,
- any references to a disqualifying event are to have effect as if they were in relation to any of the beneficiaries or unit holders.