Read the original guidance here:
HMRC SDLT: SDLTM27510 – Reliefs: supplementary Information FA03/S71

Public Subsidy and De-Minimis Exemption

The de-minimis threshold for public subsidy means that there is no specific minimum amount required for an exemption to be applicable in a land transaction. However, for the exemption to take effect, the public subsidy must be classified as a grant or some other form of financial assistance as outlined in SDLTM27500. This financial support must be directed towards the funding of the land transaction. It’s important to note that if the funding is solely for development costs—like building new homes—the exemption does not apply to the land transaction itself.

Timing of Public Subsidy

HMRC acknowledges that the exemption under S71 can apply even if the grant or other financial aid has been approved but has not yet been received by the buyer.

When a buyer enters a land transaction anticipating that a grant or financial aid will be provided (even if it is not yet confirmed), they can file their land transaction return based on the expectation that the exemption applies. To indicate this in their return, they must include code 23.

It is the buyer’s responsibility to keep records that support their claim regarding the expected grant or financial aid for the transaction where they believe the exemption applies. Additionally, the buyer must maintain a clear audit trail of how any grants or financial assistance will ultimately be allocated to specific transactions.

Recycled Subsidy

In cases where a public subsidy is granted, there are specific rules on how that subsidy should be used. This can include obligations to repay the subsidy if the property acquired with that financial support is sold.

A relevant housing provider can enter an agreement with the government entity that issued the subsidy to recycle it. This means that when the housing is sold, the subsidy can instead be used to purchase new housing stock.

Land transactions supported by this recycled grant will qualify as being funded with public subsidy assistance, as long as the subsidy meets the criteria set out in FA03/S71.

Transferred Subsidies

HMRC will generally agree to the following conditions:

• If the buyer agrees to take on the existing public subsidy (including any reimbursement obligations) as part of the land transaction,
• If the buyer is a registered social housing provider,
• If the vendor’s earlier purchase of the property qualified for exemption under S71, and
• If the vendor used a public subsidy from the listed sources in s71(4) when acquiring the property,

Then the S71 exemption can still be applicable, and code 23 should be noted on the return.

HMRC will also acknowledge situations where a grant is awarded to a local authority under Section 31 of the Local Government Act 2003 (LGA 2003), which the local authority then directly passes on to a third party. If that third party is a registered provider of social housing using the grant to buy property for social housing provision, they must keep documentation to show that the transaction was indeed funded by this particular grant.

Since each case varies based on its specific details, buyers should consider obtaining non-statutory clearance from HMRC when there is any uncertainty about their situation.

Example of Transferred Subsidies

Let’s look at a practical example to illustrate these concepts:

A profit-making registered provider of social housing (PM RSL) plans to buy 10 homes from a non-profit registered provider (NP RSL). Originally, NP RSL had acquired these homes with a public subsidy that amounted to £400,000, which allowed for an exemption under S71. This subsidy came with specific conditions, including the expectation of repayment to the funding body under certain circumstances.

Today, the 10 homes have increased in value and are now worth £2 million. PM RSL proposes to purchase the homes for £1.6 million while also taking on the responsibility for repaying the £400,000 public subsidy. The entity that initially granted the subsidy also agrees to this arrangement. Consequently, NP RSL consented to the sale.

PM RSL’s transaction qualifies for exemption under S71 because the acquisition was funded by public subsidy. The price reflects that the liability for the subsidy has been accepted by PM RSL.

Essential Information for Buyers

When dealing with public subsidies and exemptions, it is essential for buyers to understand the following points:

• The type and source of the public subsidy are crucial. Ensure that it falls under the guidelines outlined in SDLTM27500.
• Buyers should keep detailed records that demonstrate their expectations regarding the grant or financial assistance.
• Any responsibilities related to repaying the subsidy should be clearly documented and understood between both parties involved in the transaction.
• For those considering recycled or transferred subsidies, it is vital to keep clear documentation to validate the funding pathway.

Ensuring that all elements of the transaction are properly handled will minimise complications and ensure compliance with HMRC regulations regarding public subsidies in property transactions.