BN34 - Relief from Special Trust Rates for Service
Charges Held by Social Landlords

Who is likely to be affected?

1. Registered Social Landlords and other social landlords.
   General description of the measure
2. This is a new relief for income arising on service charges/sinking funds held in trust by Registered Social Landlords (RSLs) and local authorities. Instead of being taxed at the special trust rates such income will be taxed at lower, basic or dividend ordinary rate as appropriate. The relief will also apply to service charges held in trust by the Housing Corporation, housing action trusts and charitable housing trusts.

Operative date

3. The changes will take effect for income arising from 6 April 2006.

Current law and proposed revisions

4. Most landlords, be they individuals, partnerships or companies, are required to hold service charge payments made by tenants and leaseholders in trust. RSLs and local authorities are not required to hold service charge payments in trust but in practice they often do so. If they do hold funds on trust and the income can accumulate then the income will be taxed at the special trust rates (40%/32.5%). The measure will exempt the income arising from service charges held on trust by RSLs and local authorities from the special trust rates. The income will instead be chargeable at no more than the basic rate of tax. As well as RSLs and local authorities, relief will be available for housing associations in Northern Ireland, charitable housing trusts, charitable housing associations, housing action trusts, and the Housing Corporation.
5. Section 686 of the Income and Corporation Taxes Act 1988 (ICTA) will be amended so that any income arising to any of those social landlords from service charges held in trust is exempt from the special trust rates.
6. The relief will apply to all of the UK.