Will your cohousing group need to pay more tax? Respond to the consultation on changes to SDLT before 1 February 2016.

The government is currently undergoing a consultation on changes to Stamp Duty Land Tax (SDLT).  SDLT is the tax which is paid by the buyer when property is purchased. UKCN urges all cohousing groups to respond to this consultation urgently (before February 1st) to ensure our voice is heard about tax changes that could negatively affect cohousing groups.

One of the proposed changes is that a corporate vehicle (such as a company) would pay a higher rate of SDLT when purchasing its first residential property.  This would mean that cohousing groups who buy existing residential property for development would need to pay more tax on the purchase.

It would mean an extra 3% on the purchase price would need to be paid to the government for the additional SDLT charge.  For example, for a residential property costing £750,000, the SDLT payable would increase from £27,500 to £50,000.

Wrigleys Solicitors LLP has drafted a suggested response, which is set out below.  This can be tweaked to reflect the individual circumstances of your cohousing group. The response also picks up on a couple of other property tax issues which affect cohousing groups.

Responses should be emailed to sdltadditionalproperties@hmtreasury.gsi.gov.uk by 1 February 2016, when the consultation closes.  We recommend you submit it by 31 January 2016 to make sure your response is received in time.

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Dear Sirs,

We write in response to the consultation about higher rates of SDLT on purchases of residential properties. In particular, we write to express our concerns about the impact on cohousing groups of the introduction of higher rates of SDLT where a company or collective investment vehicle purchases its first residential property, as set out at Section 2.20 and Question 17 of the consultation document.

Our background
We are a cohousing group called [GROUP NAME].  You can see more information about us here: [LINK TO YOUR GROUP WEBSITE IF YOU HAVE ONE].  We are qualified to respond to this consultation because we [have recently bought] [are planning to buy] [are members of a sector that often buys] a residential property through a corporate vehicle, for the first and only time.

What is cohousing?
Cohousing is a form of community-led housing, owned, developed and managed by the residents who live there.  A typical set up would be a group of residents who come together to form a corporate legal structure, such as a company limited by guarantee or a cooperative, to purchase a property.  This property is then developed by the group, following which the members of the corporate vehicle purchase individual long leases or occupy the property on the basis of a short term tenancy or licence arrangement.  Common areas are owned and managed collectively.  We would mention that there are other ways of structuring a cohousing development but these are the more common structures, often chosen for their relative simplicity.

Cohousing groups provide an alternative solution to the housing crisis, in that residents take matters into their own hands, to develop and manage their own houses.  There is a particular interest in the idea as a solution for older people and for affordable housing and the idea reflects the government’s Five Point Plan for housing, particularly the acceleration of housing supply and getting more homes built.

The proposed changes to SDLT outlined at Section 2.20 of the consultation document would mean that cohousing groups would be subject to the higher rate of SDLT when purchasing the land and property to be developed (assuming this is residential), as virtually all cohousing groups would only ever purchase a single residential property and so it would be the group’s first purchase.  Cohousing groups are non-charitable and are not registered social landlords, so would not generally qualify for any SDLT exemptions.Imposing a higher SDLT charge on the initial purchase would jeopardise the financial plan of many groups, because purchase and development costs are generally funded entirely by residents themselves and budgets are often extremely tight.  Imposing additional SDLT on such groups may, in some cases, prevent such developments from going ahead.  Imposing the additional SDLT on cohousing groups would be contrary to the government’s own policy agenda of expanding the housing supply and delivering more affordable homes.

Response to Consultation Question 17: Do any specific kinds of collective investment vehicle or other non-individuals need to be treated differently to companies?
We urge the government to consider excluding cohousing and community-led housing from the proposed changes.

This could be achieved by either:

  1. Excluding cohousing vehicles from the additional charge; or
  2. Excluding ‘community-led housing’ groups from the proposals.  This would require a statutory definition of ‘community-led housing’, to include cohousing.

The advantage of this second approach is that it would include other community-led housing groups in the exemption, who have similar aims to cohousing groups, in that they work to expand the housing supply for the benefit of the community.  Work has previously been done on developing a statutory definition of community-led housing and we urge you to engage with this debate by contacting the UK Cohousing Network.

Other relevant points
Residents of cohousing communities are already subject to a double charge to SDLT, in that they pay the tax twice: firstly as a member of the cohousing corporate vehicle; and secondly as a residential purchaser of an individual long lease.  Our preference would be for any exemption to take account of this double charge to SDLT, for example, by exempting a residential purchase of an individual long lease by a member from their cohousing vehicle.

We also believe that cohousing vehicles should be exempt from the annual tax on enveloped dwellings.  At the moment, most residential properties owned by cohousing vehicles fall under the current threshold, but when this is lowered, more are likely to become subject to the charge.  This would be an additional disincentive to the development of new cohousing communities and may jeopardise the future of existing ones.

Thank you for your time.

Kind regards,

For and on behalf of [NAME OF COHOUSING GROUP]