The Annual Tax on Evnveloped Dwellings (ATED) initally only applied to single dwellings with a value over £2m. The threshold was reduced to £1m, and then to £500,000 in April 2016. The legislation was supposed to catch tax avoidance by wealthy people, but housing co-operatives also fall within the definition used for ATED. However as a result of a joint campaign with Co-ops UK, the government has granted a relief from ATED for housing co-ops, providing they qualify with the following:

• the co-op meets the definition in the Housing Associations Act 1985, or Part 2 of the Housing (Northern Ireland) Order 1992,
• is a registered society within the meaning of the Co-operative and Community Benefit Societies Act 2014, or the Co-operative and Community Benefit Societies Act (Northern Ireland) 1969; and its rules:
• restrict membership to individuals who are tenants, or prospective tenants of the property,
• prevent the granting or assignment of tenancies to individuals other than members of the co-op,
• prevent the members of the co-op from transferring any of their shares,
• prevent the members of the co-op from making a gain on a return of share capital, and
• give members equal voting rights.

Most standard housing co-op model rule sets, such as RRFM14 published by Radical Routes, will comply with the above.

Claiming Relief

ATED is a self-assessment tax, meaning the onus is on the taxpayer to file returns with HMRC (with penalties for non-compliance). To claim the relief, a Relief Declaration Return needs to be submitted, by 30 April each year.

A co-op that already submitted an ATED return for 2020/21 can claim a refund for this year. Unfortunately the relief is not back-dated any further and thus previous years' liabilities may technically still remain.

ATED is based on five-yearly valuations and the current (as of March 2023) applicable valuation date is 1 April 2022. Co-ops that own properties slightly over the £500k threshold today need to decide for themselves whether they were below the threshold on 1 April 2022, in which case no ATED returns are due until the next valuation on 1 April 2027. A professional valuation is recommended but not essential: the HMRC guidance states "You must assess the value of the property yourself or use a professional valuer".

Further Resources

HMRC Guidance
Budget 2021 legislative text (page 33 onwards)
Budget Representation in conjunction with co-ops UK

Stamp Duty Land Tax (SDLT) is payable on the transfer of ownership of property in England and Northern Ireland (Scotland and Wales have equivalent, but distinct taxes). As such it affects new housing co-ops, and existing co-ops wishing to expand by buying further property. SDLT already poses a major affordability problem for co-ops, because it cannot be added to a mortgage loan (since paying it doesn't increase the value of the property), and thus the often not insignificant amounts have to be found elsewhere. In parallel with the introduction of ATED, a punitive rate of 15% SDLT was introduced with mirror criteria - thus effectively making it non-viable for any housing co-op to purchase a property over the £500,000 threshold.

The government has granted a relief for Higher Rate SDLT alongside the relief from ATED. Housing co-ops meeting the critera for ATED relief will also be able to claim relief from 15% SDLT (but will still have to pay the usual SDLT, including the 3% surcharge). A claim for Higher Rate SDLT relief needs to be made during the conveyancing process. If the housing co-op were to change its rules or otherwise no longer meet the criteria for a period of three years thereafter, the Higher Rate SDLT would become retrospectively due.

This relief needs to be claimed by the conveyancing solictor on the SDLT1 form during the property purchase, using relief code 35.

HMRC guidance on higher rate relief