On 31 March, the government announced in a Written Ministerial Statement that it intends to introduce legislation in Finance Bill 2022-23 to ensure that the Homes for Ukraine Sponsorship Payment will be exempt from income tax and corporation tax and that the payment will not be chargeable to national insurance contributions (NIC). The payment will be made by local authorities to sponsors under the Homes for Ukraine Scheme. However, as the payments will be treated as non-taxable income, landlords will be unable to claim a tax deduction for related expenditure.
The legislation will be retrospective with effect from the date the first payments to sponsors are made. HMRC will not collect any tax that may have been due before the legislation takes effect.
The statement also confirms that legislation has been introduced to ensure that the payments will be disregarded for the purposes of calculating tax credits. The Homes for Ukraine scheme: frequently asked questions webpage indicates that the payments will not affect benefit entitlement or council tax discounts.
Other potential tax charges
The statement confirms that companies that currently qualify for relief from the annual tax on enveloped dwellings (ATED) and relief from the 15% stamp duty land tax (SDLT) higher rate charge will continue to be able to claim relief while the dwellings are being used under the Homes for Ukraine Scheme, where relief had been claimed on the basis that:
- the dwelling is used in a property development business;
- the dwelling is used in a property trading business; or
- it is let on a commercial basis.
By way of background, where residential property is acquired by a non-natural person (eg, a body corporate, a partnership of which one or more members is a body corporate, or a collective investment scheme), a 15% SDLT applies if the chargeable consideration exceeds £500,000. The property may also then be subject to ATED.
Reliefs from both charges are available depending on how the dwelling is used. However, for SDLT, this relief may be withdrawn if the criteria cease to be met in the three years following the acquisition.
Companies acquiring property that would otherwise qualify for relief from the 15% SDLT rate, can claim relief if the property is to be temporarily used under the Homes for Ukraine Scheme.
ATED relief for use of the property under the Homes for Ukraine Scheme can be claimed if the property has not previously qualified for relief as a dwelling used in a property development or property trading business or let on a commercial basis.
The legislation, to be included in Finance Bill 2022-23, will have effect from 1 April 2022 for ATED and from 31 March 2022 for SDLT. From those dates, HMRC will not collect any tax that may have been due following a change in the use of the dwelling to be part of the Homes for Ukraine Scheme.
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