Homes for Ukraine scheme: tax treatment
The Government has announced that sponsorship payments under the Homes for Ukraine scheme will not be taxable and that the conditions for some tax reliefs will be adjusted to take account of the scheme.
Homes for Ukraine scheme
The scheme allows individuals, charities, community groups and businesses in the UK to bring Ukrainians to the UK and provide free accommodation for them.
Sponsorship payments
The government is offering an optional ‘thank you’ payment of £350 per month for people accommodating Ukrainian refugees under the Homes for Ukraine scheme. Accommodation must be provided rent-free, so the payment is intended to recognise that there will be costs associated with providing it.
The Financial Secretary to the Treasury announced on 31 March that the government will legislate, in Finance Bill 2022-23, to ensure that these payments will not be taxable. The legislation will be retrospective and will take effect from the date the first payments are made to sponsors. Payments will be exempt from income tax, corporation tax and will not be subject to National Insurance contributions. Legislation already introduced also provides that they will be disregarded when calculating income for the purposes of tax credits.
Landlords receiving payments should note that as the payments will be treated as non-taxable income, any related expenses will not be allowable as tax deductions.
Companies
Legislation will also be included in Finance Bill 2022-23 to deal with companies that currently qualify for the existing reliefs from the Annual Tax on Enveloped Dwellings (ATED) and the 15% rate of Stamp Duty Land Tax (SDLT) for dwellings used in a property development or property trading business, or let on a commercial basis. These companies will continue to qualify for the reliefs while the dwellings are being used under the Homes for Ukraine scheme.
Where a company purchases a property for a purpose that would otherwise be relievable from the 15% rate of SDLT, relief will continue to be available if the property is to be temporarily used under the Homes for Ukraine scheme.
Where a dwelling does not currently qualify for relief from ATED, before the property is included in the Homes for Ukraine scheme, ATED relief will be available from the point of occupation where the entire dwelling is used under the Homes for Ukraine scheme.
The legislation will take effect from 1 April 2022 for ATED and from the date of the ministerial statement (31 March) for the 15% rate of SDLT. From those dates (and to the date the legislation takes overriding effect) HMRC will not collect any ATED or SDLT that may have been due following a change in the use of the dwelling to be part of the Homes for Ukraine scheme.
HMRC has updated its ATED guidance and its SDLT guidance (SDLTM09652 and SDLTM09656) to provide more information.
Furnished Holiday Lets
The March ministerial statement did not address the potential impact on the availability of the special tax regime for Furnished Holiday Lets (FHLs), of making a property available under the Homes for Ukraine scheme. However, an earlier parliamentary question asked whether the Chancellor would review the requirement for FHLs to be let at a commercial rate for 105 days per annum, to allow the property to be offered as free accommodation to Ukrainian refugees. The question did not raise any of the other FHL conditions.
A response was provided by the Financial Secretary to the Treasury on 10 March, which suggests that there are no plans to make any adjustment to the FHL rules:
“Furnished Holiday Lets (FHLs) receive special tax treatment including the ability to claim trading Capital Gains Tax reliefs and capital allowances for items such as furniture. In addition, FHLs are not subject to any finance cost relief restriction and profits count as earnings for pension purposes.
Landlords can provide their residential properties to refugees for free. When a property does not qualify as a FHL, or stops being a qualifying FHL, the landlord becomes subject to the normal tax rules for residential property rental income.
Whilst there are no plans to change this to reflect the situation in Ukraine, the UK Government is clear that we must ensure the humanitarian needs of displaced people are met, both within and beyond Ukraine’s borders, and we urge the relevant authorities to consider and plan for such possible outcomes. The UK is now the largest bilateral humanitarian donor to Ukraine and has pledged around £400 million to help Ukraine.”
The content of this article is for general guidance only and is not intended to be definitive or to give guidance on specific circumstances. It is not a substitute for taking advice and should not be relied upon.