Land Transaction Tax relief for certain transactions relating to social housing: technical guidance

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(paragraph 1)

This schedule provides a number of reliefs to support home ownership:

• right to buy arrangements
• shared ownership leases
• rent to shared ownership leases
• shared ownership trusts
• rent to share ownership trusts
• rent to mortgage arrangements

Additionally, the schedule contains relief for certain acquisitions by registered social landlords.

(paragraph 2)

A right to buy transaction is defined as either:

• the sale of a dwelling at a discount (or the grant of a lease of a dwelling at a discount) by a relevant public sector body, or
• the sale of a dwelling (or the grant of a lease of a dwelling) pursuant to a preserved right to buy.

Relevant public sector bodies for this relief for LTT purposes are:

• a Minister of the Crown
• the Welsh Ministers
• a local housing authority within the meaning in section 1 of the Housing Act 1985
• a registered social landlord
• a housing action trust established under Part 3 of the Housing Act 1988
• a local policing body within the meaning of Section 101(1) of the Police Act 1996
• a person specified for the purposes of this relief in regulations made by the Welsh Ministers

In relation to the sale of a dwelling or the grant of a lease of a dwelling made in pursuance of a preserved right to buy the seller is a person against whom the right to buy under Part 5 of the Housing Act 1985 is exercisable by virtue of section 171A of that Act. The buyer is the qualifying person with the preserved right to buy and the dwelling is the qualifying-dwelling house in relation to the buyer.

The relief is through the provision of alternative methods of calculating the chargeable consideration.

In the case of a right to buy transaction, the rules relating to contingent consideration do not apply in relation to any discount provided by the seller. Therefore the chargeable consideration does not include any consideration payable if a contingency (for example the need to pay the discounted amount to the seller) were to occur.

In a right to buy transaction, where the seller is a registered social landlord, any purchase grants provided by the Welsh Ministers under section 20 or 21 of the Housing Act 1996 in respect of the disposal at a discount by the registered social landlord are not included in the calculation of the chargeable consideration.

The Abolition of the Right to Buy and Associated Rights (Wales) Act 2018 will end the right to buy, preserved right to buy and the right to acquire for tenants of local authorities and registered social landlords. For new homes these rights ended 2 months after the Bill received Royal Assent. For existing housing stock final abolition will take place at least one year after Royal Assent (see gov.wales) 

(paragraphs 3 to 9)

Shared ownership lease – election for market value treatment where freehold interest can be acquired

(paragraph 3, 4 and 7).

The term “shared ownership lease” is not defined in the LTT legislation.

In order to benefit from the specific rules for an election for market value treatment, all of the following conditions must be met. The lease must:

• be granted either by a qualifying body or in pursuance of a preserved right to buy
• be of a dwelling
• give the lessee/tenant (or lessees/tenants) exclusive use of the dwelling
• provide that the lessee can acquire the reversion
• be granted partly in consideration of rent and partly in consideration of a premium, and that the premium is calculated by reference to the market value of the dwelling or a sum calculated by reference to that value
• contain a statement of the market value of the dwelling or the sum calculated by reference to that value

The taxpayer must also make a valid election for the market value rule to apply to the acquisition.

A taxpayer may make an election so that the chargeable consideration for the grant of the lease is the market value of the dwelling stated in the lease and no account is taken of the rents (as contingent consideration or otherwise). Furthermore, the usual rules for the establishment of the market value of the property as set out in section 70 LTTA do not apply.

For the election for this treatment to be valid, it must be made to the WRA at the same time as the return (by claiming the relevant relief code in the return). The election cannot be withdrawn or amended once made. However, if necessary the election can be notified to the WRA in an amended return.

The chargeable consideration on the grant of the lease is to be treated as if it is not linked to any staircasing transaction or to the transfer of the reversion.

When the reversion of the lease is transferred to the tenant that chargeable interest is relieved from tax so long as the election was made and any tax chargeable in respect of the grant of the lease has been paid in full. In the absence of a valid election, the reversion will not be relieved from tax and any LTT arising on that transaction would be payable.

Shared ownership lease – election for market value where freehold interest cannot be acquired

(paragraph 5 and 7)

Relief is also available for the acquisition of shared ownership leases where there cannot be an acquisition by the lessee/tenant of the freehold, for example the acquisition of a flat in a block of flats.

In order to benefit from the specific rules for an election for market value treatment, all of the following conditions must be met. The lease must:

• be granted either by a qualifying body or in pursuance of a preserved right to buy
• be of a dwelling
• give the lessee/tenant (or lessees/tenants) exclusive use of the dwelling
• provide that the lessee/tenant (or lessees/tenants), on payment of a sum, may require the terms of the lease to be altered so that the rent payable under the lease is reduced
• be granted partly in consideration of rent and partly in consideration of a premium, and that the premium is calculated by reference to the premium that would have been obtainable in the open market for a lease granted on the same terms, other than the amount of rent that should be the minimum payable and not the actual rents payable, or a sum calculated by reference to that premium
• contain a statement of the minimum rent and of the premium obtainable in the open market or the sum calculated by reference to that premium

The effect of these rules is that in the event that an election is made, the chargeable consideration will be the amount of premium that would be payable in the event that no rents other than the minimum rents (for example, ground rents) were payable. The amount of chargeable consideration will therefore represent the open market value of the premium, rather than the actual premium paid and the value of any rents payable.

The taxpayer must make a valid election for the open market rule to apply to the acquisition.

A taxpayer may make an election so that the chargeable consideration for the grant of the lease is the market value of the premium stated in the lease and no account is taken of the rents (as contingent consideration or otherwise). Furthermore, the usual rules for the establishment of the market value of the property as set out in section 70 LTTA do not apply.

For the election for this treatment to be valid, it must be made to the WRA at the same time as the return (by claiming the relevant relief code in the return). The election cannot be withdrawn or amended once made. However, if necessary the election can be notified to the WRA on an amended return.

The chargeable consideration on the grant of the lease is to be treated as if it is not linked to any future staircasing transaction.

Shared ownership lease - staircasing transactions

(paragraph 6)

When buying a home through a shared ownership lease (be that where a freehold reversion is possible or not), a taxpayer may be able to buy additional shares or interests in the property (commonly known as staircasing).

A staircasing transaction will occur where a lessee/tenant has the right, on payment of a sum of money, to require the terms of the lease to be varied so that the rent payable is reduced, and that by doing so the lessee/tenant acquires and additional interest in the property over that already owned. For a property with a freehold reversion this will mean that the lessee/tenant acquires an increased interest in the freehold, and for a leasehold property that the terms of the lease are changed to reflect the further premium paid.

If an election is made then any staircasing transactions are relieved from tax, subject to a claim, if any tax payable on the first transaction has been paid.

If no election has been made then the transaction is relieved from charge, subject to a claim, if the total interest held by the lessee/tenant does not exceed 80% of the interest subject to the shared ownership lease. Once the interest owned by the lessee/tenant is, or exceeds 80%, the lessee/tenant‘s return cannot include a claim for relief and must include a self assessment of any tax payable.

For residential leases rent is not chargeable consideration. This means that where a taxpayer enters into a shared ownership lease without an intention to increase their share or interest in the property they may achieve a more favourable tax position by choosing to be charged LTT on the premium they pay, rather than making a market value election. As stated above, an election cannot be withdrawn once it has been made, however, if necessary it can be made to the WRA in an amended return.

If the staircasing transaction is not notifiable then no return needs to be made to the WRA. When the staircasing transaction is notifiable a return must be made and relief claimed.

Shared ownership leases – no election

The grant of the lease and all staircasing transactions - including those which are relieved from charge are ‘linked transactions’.

The LTT chargeable on staircasing transactions above 80% is determined by the total consideration given for all the linked transactions.

If the staircasing transaction does not take the lessee/tenants interest to 80% or greater, if the transaction is not notifiable, no return needs to be made to the WRA. When the staircasing transaction results in the lessee/tenant owning an interest of 80% or greater, a return must be made using the linked transactions rules.

Rent to shared ownership lease – charge to tax

(paragraph 8)

A rent to shared ownership lease scheme means a scheme under which a person or persons is granted an occupation contract of a dwelling by a qualifying body and subsequently that qualifying body grants a shared ownership lease of the dwelling to the same person or persons.

An occupation contract has the meaning given in Part 2 of the Renting Homes (Wales) Act 2016.

Transactions between the qualifying body and the person or persons (or any of them) under these schemes are not treated as linked transactions.

This includes:

• the grant of the occupation contract,
• the grant of a shared ownership lease, and
• any other land transaction (e.g. an option) entered into as part of the scheme

The person or persons’ possession of the dwelling under the occupation contract is disregarded in determining the effective date of the grant of the shared ownership lease. This means that even if the person takes possession under an occupation contract after contracts are exchanged but before the shared ownership lease is granted, the effective date will still be the date on which the shared ownership lease is granted. Therefore the substantial performance rules are not triggered in any event if the person already occupies the property under an occupation contract when contracts for the shared ownership lease are exchanged.

(paragraph 9)

Qualifying bodies are:

• a local housing authority within the meaning of section 1 of the Housing Act 1985
• a housing association within the meaning given in the Housing Act 1985, or
• a housing action trust established under Part 3 of the Housing Act 1988

A lease is granted in pursuance of a preserved right to buy when:

• the lessor/seller is a person against whom the right to buy (under Part 5 of the Housing Act 1985) is exercisable by virtue of section 171A of that Act
• the lessee/buyer is (or lessees/buyers are) the qualifying person(s) for the purposes of the preserved right to buy, and
• the lease is of a dwelling that is the qualifying dwelling-house in relation to the lessee/buyer

A ‘qualifying person’ and a ‘qualifying dwelling-house’ have the meanings given in section 171B of the Housing Act 1985.

(Paragraphs 10 to 17)

Relief, through the provision of rules that provide for the consideration given for specified shared ownership and rent to shared ownership schemes involving shared ownership trusts, are to be calculated differently from the primary rules for LTT.

Shared ownership trust: meaning

(paragraph 10 and 11)

A shared ownership trust is a trust of land, within the meaning of section 1 Trusts of Land and Appointment of Trustees Act 1996, which meets the following conditions:

• the trust property is a dwelling in Wales
• one of the beneficiaries of the trust must be a qualifying body (‘the social landlord’)
• the terms of the trust must:
  • provide for one or more individual beneficiaries (‘the buyer’) to have exclusive use of the trust property as their only or main residence
  • require the buyer to make an initial payment (‘the initial capital’) to the social landlord
  • require the buyer to make additional payments (‘rent-equivalent payments’) to the social landlord by way of compensation under section 13(6)(a) Trusts of Land and Appointment of Trustees Act 1996
  • enable the buyer to make other additional payments (“equity-acquisition payments”) to the social landlord
  • determine the initial beneficial interests of the social landlord and the buyer by reference to the initial capital
  • specify a sum, equating or relating to the market value of the dwelling, by reference to which the initial capital is calculated, and
  • provide for the buyer’s beneficial interest in the property to increase, and the social landlord’s to diminish (or be extinguished) as equity-acquisition payments are made

For shared ownership trusts a ‘dwelling’ includes:

• a building which is being constructed or adapted for use as a dwelling
• land which is to be used for the purpose of the construction of a dwelling, and
• land which is, or is to become, the garden or grounds of a dwelling

For shared ownership trusts a ‘qualifying body’ is:

• a local housing authority within the meaning given by section 1 of the Housing Act 1985
• a housing association within the meaning given in the Housing Associations Act 1985, or
• a housing action trust established under Part 3 of the Housing Act 1988

For shared ownership trusts ‘the buyer’ is:

• the individual(s) identified as the buyer under the conditions for this relief, and not the social landlord or any other beneficiary, is to be treated as the buyer(s) of the trust property

Furthermore, the usual rules for the establishment of the market value of the property as set out in section 70 LTTA do not apply.

Shared ownership trusts: election for market value treatment

(paragraph 12)

The buyer acquiring an interest in a dwelling held under a shared ownership trust, may make a market value election similar to that for a shared ownership lease.

As the rules provide that the definition of market value in section 70 is not used for this relief, the market value should be computed on a vacant possession basis.

The election is irrevocable, therefore, once it is made it cannot be changed, even by an amendment (or further amendment) to the return.

The election is made in the land transaction return submitted in respect of the declaration of the shared ownership trust by showing the market value as the consideration and entering the relevant relief code. However, if necessary the election can be notified to the WRA in an amended return.

The effect of a valid election is that:

• the chargeable consideration for the declaration of the shared ownership trust is the sum specified in the terms of the trust, equating or relating to the market value of the dwelling, by reference to which the initial capital is calculated, and 
• no account is taken of rent-equivalent payments

Shared ownership trust: staircasing transactions and transfer upon termination

(paragraph 13 and 14)

Provided that a valid election has been made and any tax chargeable in respect of the declaration of the shared ownership trust has been paid:

• equity-acquisition payments (‘staircasing‘), and the consequent increases in the purchaser’s beneficial interest, and
• the transfer to the purchaser of an interest in the trust property on termination of the trust

are relieved from charge.

Shared ownership trust: treatment additional payments where no election made

(paragraph 14, 15 and 16 )

If the buyer does not make a market value election, LTT on the declaration of a shared ownership trust is charged on the basis that the initial capital is treated as consideration other than rent and rent-equivalent payments are treated as payments of rent.

Equity-acquisition payments and the consequent increases in the purchaser’s beneficial interest, are relieved from charge if, following the increase, the buyer’s beneficial interest does not exceed 80% of the total beneficial interest in the trust property.

Such payments and consequential increases are chargeable to LTT if, following the increase:

• the buyer’s beneficial interest exceeds 80% of the total beneficial interest in the trust property, or
• an interest in the trust property is transferred to the buyer on termination of the trust.

For the purpose of determining the amount of tax chargeable on the declaration of a shared ownership trust, the declaration is treated as if it were not linked to:

• any equity-acquisition payment or any consequent increase in the purchaser’s beneficial interest in the trust property, or
• a transfer to the purchaser of an interest in the trust property on termination of the trust

An equity acquisition payment, where no election has been made, is relieved from tax if following the increase in the buyer’s beneficial interest that interest does not exceed 80% of the total beneficial interest in the trust property

If the staircasing transaction, does not take the lessee/tenants interest to 80% or greater, then if the transaction is not notifiable no return needs to be made to the WRA. When the staircasing transaction (or on the beneficial interest on termination of the trust transfers to the buyer) results in them owning an interest of 80% or greater, then a return must be made using the linked transactions rules.

Rent to shared ownership trust; charge to tax

(paragraph 17)

A ‘rent to shared ownership trust scheme’ means a scheme under which a person or persons may become a beneficiary (‘the buyer’) under a shared ownership trust with a qualifying body (‘the social landlord’) and that body grants to the person or persons an occupation contract of the dwelling to that person or persons. 

An occupation contract has the meaning given in Part 2 of the Renting Homes (Wales) Act 2016.

Transactions between the qualifying body and the person or persons (or any of them) under these schemes are not treated as linked transactions. This includes:

• the grant of the occupation contract
• the grant of a shared ownership lease, and
• any other land transaction (e.g. an option) entered into as part of the scheme

The person or persons’ possession of the dwelling under the occupation contract is disregarded in determining the effective date for the declaration of the shared ownership trust. This means that even if the person takes possession under an occupation contract, as part of the rent to shared ownership trust scheme, but before the shared ownership trust is declared, the effective date will still be the date on which the trust is declared. Therefore the substantial performance rules are not triggered in any event if the person already occupies the property under an occupation contract when the shared ownership trust scheme arrangements are agreed or put in place.

(paragraph 18)

A rent to mortgage transaction means:

• the transfer of a dwelling to a person
• the grant of a lease of a dwelling to a person

where that person is exercising a right to acquire on rent to mortgage terms under Part 5 of the Housing Act 1985.

The chargeable consideration for the transaction is the price that would be payable for:

• the transfer of the dwelling to the person (where the transaction is a transfer)
• the grant of a lease of the dwelling to the person (where the transaction is the grant of the lease)

calculated in accordance with Section 126 of the Housing Act 1985 as it applies to rent to mortgage transactions.

The relief is therefore through the provision of an alternative method of calculating the chargeable consideration.

(paragraph 19)

Relief is available for a land transaction where the buyer is a registered social landlord, and one of the following conditions are met:

• the registered social landlord is controlled by its tenants
• the seller is a qualifying body, or
• the transaction is funded with the assistance of a public subsidy

A registered social landlord is controlled by its tenants if the majority of the board members are tenants occupying properties owned or managed by the registered social landlord.

For this relief a board member is:

• if it is a company, a director of the company
• if it is a body corporate whose affairs are managed by its members, one of those members
• if it is a body of trustees, one of those trustees, or
• otherwise, a member of the management committee or other body which is entrusted with the management of the registered social landlord

The transaction does not have to be fully funded with the subsidy. However, for this relief to apply, the public subsidy must be in the form of any grant or financial assistance:

• made or given by way of a distribution under Section 25 of the National Lottery etc. Act 1993
• made by the Welsh Ministers under Section 18 of the Housing Act 1996 (social housing grants), or
• under Section 126 of the Housing Grants, Construction and Regeneration Act 1996 (financial assistance for regeneration and development)

For this relief a qualifying body is:

• a registered social landlord
• a housing action trust established under Part 3 of the Housing Act 1988
• a county or county borough council constituted under section 21 of the Local Government Act 1972
• a county or district council constituted under Section 2 of the Local Government Act 1972, or
• the Welsh Ministers

Relief, when claimed, is equal to the LTT which would otherwise be payable.