Charities, and those providing social housing, must take care to avoid paying the Community Infrastructure Levy – a new tax on developments that require planning permission.
The levy, the rate of which is set locally, came into force on 6 April 2010. It is forecasted to raise £700m per annum by 2016 – providing valuable top-up funding for necessary local infrastructure. However, the expected yield supports the view that it will be a significant cost and cannot be ignored.
When planning permission has been granted and before the development starts, a ‘commencement notice’ must be submitted to the ‘collecting authority’, which in most cases will be the planning authority. The collecting authority issues liability notices and collects the tax.
Following strong lobbying, exemptions for charities and those developing social housing have been agreed upon – but there are pitfalls. Any claims for charity and social housing reliefs must be with the collecting authority before the development commences and the authority must have notified the charity or social housing provider of its decision on the claim before any work commences. Moreover, a development ceases to be eligible for relief if the charity or social housing provider fails to submit a commencement notice to the collecting authority before starting work.
To be eligible for relief, however, a charity must own a material interest in the land and the development must be used wholly or mainly for charitable purposes. If the land is owned by the charity jointly with a
non-charity, there will be no relief. If a charity’s trading subsidiary has an interest in the land, the relief will be compromised. Similarly, there is a problem if a supporter bequeaths an interest in a property to a charity where the other party is a non-charity.
A charging authority can grant discretionary relief when a charity undertakes a development that will generate income for the charity. The potential problem here is that the charity must not use the development for ineligible trading activities, defined as ‘trading other than the sale of goods donated to the charity where the proceeds of sale of the goods are applied to the charity’s charitable purposes’. It is unclear how this will be applied. The regulations contain no de minimis exemption; thus charities could be in trouble if they use the space for a few weeks for an activity such as selling Christmas cards.
Of note for charities is the point that if the development passes to a non-charity within seven years, the relief is clawed back. For social housing providers, the clawback provisions permit the disposal of a qualifying dwelling provided that the sale proceeds are either spent on another qualifying dwelling or transferred to certain specified public authorities.
Trevor James, Head of Charities, Sheen Stickland LLP