DPF 01
1 Introduction and summary
2 Calculation of contributions to the fund
3 Examples of the Disposal Proceeds Fund calculation
4 Repayment of VPG and RTA discounts
5 Permitted uses of land
6 Internal accounting and administration
7 Annual return on the Disposal Proceeds Fund
8 Calculation of notional interest on the fund
9 Three year review
10 Statutory accounting requirement
1 INTRODUCTION AND SUMMARY
1.1 Section 24 of the Housing Act 1996 requires RSLs to credit to a Disposal Proceeds Fund (the Fund) the net proceeds of Right to Acquire (RTA, defined in chapter RTA-1) Social Homebuy (SHB, defined in chapter SHB) and Voluntary Purchase Grant (VPG, defined in chapter VPG-1) sales. Net proceeds comprise the sales proceeds and grant towards the discount, less permitted deductions. The main objective of the Fund is to provide replacement properties for rent, at no greater cost than properties provided through the National Affordable Housing Programme. RSLs report annually on how they have used the Fund.
2 CALCULATION OF CONTRIBUTIONS TO THE FUND
2.1 The gross proceeds of sale comprise the payment from the purchaser and the purchase grant paid towards the discount.
2.2 Admissible deductions from the gross proceeds are:
- the attributable loan debt (defined in the Housing Right to Acquire Regulations 1997, Schedule 5 Section 13 );
- valuation fees incurred by the RSL;
- legal fees incurred by the RSL;
- survey fees (sale of flats only) incurred by the RSL;
- RTA/VPG/SHB allowance see Capital Funding Guide: Administrative Allowances 2006-08.
The cost of abortive valuation, legal and survey fees may be deducted from the sale proceeds of a subsequent sale which goes ahead, provided this does not result in a negative amount recorded in the Fund. If deductions would lead to a negative amount, the balance of abortive costs must be deferred until the next sale that proceeds.
2.3 As all the net proceeds transfer into the Fund, there is no separate repayment of any Housing Association Grant or Social Housing Grant that may have helped fund the original provision of the property.
2.4 Where the Corporation has not paid grant for the discount (see RTA-4 paragraph 11.1), RSLs cannot offset the discount against the net proceeds to be transferred into the Fund.
3 EXAMPLES OF THE DISPOSAL PROCEEDS FUND CALCULATION
3.1 For sales other than those of stock included in stock transfers to RSLs, the attributable loan debt is calculated by deducting SHG and/or other public subsidy from the historic cost of the property (example 1). For transferred stock, the attributable loan is the peak loan debt divided by the number of transferred units based on the current approved business plan (example 2). The attributable loan for stock provided post transfer will be calculated in accordance with example 1.
Example 1 - Property provided with SHG or other public subsidy
| a | Market value )note 1) | 70,000 | |
| Less admissible deductions | |||
| b | Historic cost (note 2) | 50,000 | |
| c | Less SHG/OPS (note 3) | 25,000 | |
| d | Attributable loan debt (b-c) (note 4) | 25,000 | |
| e | Allowable expenses (survey fees etc ) | 3,000 | |
| f | Administrative allowance (house) (note 5) | 651 | |
| g | Transfer to the Disposal OProeeds Fund | 41,349 | |
| =a-(d+e+f) |
Example 2 - Stock transfer RSL (e.g. an LSVT)
a
Market Value (note 1)
70,000
Less admissible deductions
b
Peak loan debt on the transfer
3,200,000
c
Divided by units in the transfer
200
d
Attribuutable loan debt (b-c) (note 6)
16,000
e
Allowable expenses (survey fees etc)
3,000
f
Aministrative allowance (house
651
g
Transfer to Disposal Proceeds Fund
= a-(d+e+f)
50,349
Example 3 - Property provided without SHG or other public subsidy
a
Market Value
70,000
b
Historic Cost
20,000
c
Less SHG/OPS
nil
d
Attributable loan debt (b-c)
20,000
e
Allowable expenses (survey fees etc )
3,000
f
Administrative allowance (flat)
1,463
g
Transfer to the Disposal Proceeds Fund
45,537
=a-(d+e+f)
Notes:
(1) Market value is the open market value that should equal the sum of the purchase price plus the discount.
(2) Historic costs are the costs of acquisition and development excluding:
- works of repair or maintenance;
- works to deal with defects in the property;
- works of improvement where they are paid for on or after the date of the tenant's Right to Acquire application unless:
the landlord entered into a written contract for the works before the tenant's application; or
the tenant had agreed to the works being carried out before the service of the offer notice; or
the tenant has agreed the works as part of the proposed terms of the conveyance.
(3) Public Subsidy means grant or other financial assistance of any kind used by the landlord in whole or in part in connection with acquisition and development costs (including repair, maintenance or improvement) where the subsidy was provided by one of the bodies listed in Paragraph 13(5) of Schedule 5 of the Housing (Right to Acquire) Regulations 1997. This reads as follows, excluding sections relating to Wales:
“the Housing Corporation under section 18 of the Housing Act 1996 (social housing grants),
the Secretary of State under s.126 of the Housing Grants, Construction and Regeneration Act 1996 under the programme designated “City Challenge”,
a local housing authority where grant is paid pursuant to an application by the landlord under Part VIII (grants towards the cost of improvements and repairs, etc.) of the Local Government and Housing Act 1989 or Chapter I of Part I (grants &c. for renewal of private sector housing) of the Housing Grants, Construction and Regeneration Act 1996,
National Lottery, and
a local authority in a case where the local authority has conveyed the freehold or the leasehold of land to the landlord at a price which is below the market value of the land at the time of the conveyance.”
The total amount of public subsidy is based on the original acquisition and construction only. Subsequent grant paid eg for major repairs is excluded from the calculation.
(4) Attributable Debt is the amount the RSL has theoretically borrowed to meet the difference between the unit cost of development and the public subsidy.
(5) Allowances cover the RSL’s own administrative expenses including a proportion of overheads. The examples use the rates for 2000/2001. For current ‘property disposal deductible administration expenses’ values, please refer to the most recent administrative allowances guidance, which can be located at Capital Funding Guide: Administrative Allowances 2006-08 .
(6) Attributable Peak Loan Debt (transferred stock) - is defined in the regulations under Paragraphs 13(3) and 13(6) of Schedule 5. In summary it is the amount under a loan agreement (paragraph 13(6) of the Regulations refers) that is the portion of the maximum amount that the landlord may borrow which is attributable to the property. The calculation is based on the RSL's peak loan debt divided by the number of transferred units. RSLs should refer to the business plan agreed at the date of the transfer from the local authority for the purposes of identifying peak loan debt. The Housing (RTA) Regulations 1997 Schedule 5, Section 13 which should be available via the Office of Public Sector Information
4 REPAYMENT OF VPG AND RTA DISCOUNTS
Purchasers must repay to the RSL all or part of their RTA, SHB or VPG discount if they sell on within five years, (see RTA, SHB and VPG chapters). The repayment goes into the Fund.
5 PERMITTED USES OF THE FUND
5.1 An RSL may spend the Fund on the following projects provided that they would qualify in principle for Social Housing Grant from the National Affordable Housing Programme:
- acquisition of dwellings for letting;
- acquisition and improvement, conversion or repair of dwellings for letting;
- acquisition of land followed by construction, on that land, of dwellings for letting;
- acquisition of land and buildings, followed by demolition and construction, on that land, of dwellings for letting;
- repairs to, or improvement of, dwellings which have been vacant for a time specified by the Corporation in order that those dwellings might be let again;
- repairs to, or improvement of, dwellings that an RSL would otherwise demolish, in order that they might continue to be used for letting;
- payment of unrelieved capital gains tax upon net disposal proceeds transferred into the Fund.
Consideration is being given to extending the use of the Fund and further guidance will be provided in due course.
5.2 An RSL may combine money from the Fund with new allocations of Social Housing Grant, but only on projects described in para 5.1 above. The contribution from the Fund will be treated as other public subsidy that is deducted from grant in the grant calculation. An RSL must always consult the Corporation and local authority before making such a combination, in the same way as for combining Recycled Capital Grant Fund with Social Housing Grant (see para 6 of REC-4). An RSL may also combine the Fund with the Recycled Capital Grant Fund; again, only on projects described in 5.1 above.
5.3 The occupants of dwellings provided from the Fund, other than those covered by statutory exceptions, will have the right to acquire. If they exercise their right, the net proceeds will return to the Fund in the way prescribed in this guidance. If an RSL disposes of the dwellings in any other way, the RSL should return to the Fund the lesser of the net proceeds or the original contribution from the Fund.
5.4 A programme for replacement units should meet the priority needs of local authorities and complement the Corporation's regional housing strategy and guidance. When deciding the type and location of a programme of replacement units, and the nomination arrangements, the RSL must consult in writing both the local authority where the original sale took place and, if different, the destination local authority, and the Corporation’s field office’s Investment Officer.
5.5 If units sold had been provided by the RSL with funding from the Rough Sleeper's Initiative (RSI), the RSL should recycle the sale proceeds to provide replacement stock for RSI clients.
5.6 Replacement property should also comply with all standards and requirements specified by the Corporation from time to time, including performance standards and guidance on rents.
5.7 The withdrawals from the Fund must be calculated, in writing, according to procedures in this Guide for the type of scheme. Details of the calculations and withdrawals must be retained for inspection by external auditors.
5.8 RSLs may never overdraw from the Fund, not even in anticipation of forthcoming receipts.
6 INTERNAL ACCOUNTING AND ADMINISTRATION
6.1 A clear audit trail must be maintained, documenting all transactions involving the fund. To assist this, the Corporation suggests opening a separate bank account for the Fund. The account can be cleared to zero nightly with the balance being transferred to the general account for transaction purposes. This arrangement should allow RSLs to produce a statement for the account showing proceeds and expenditure that will help with calculating notional interest.
6.2 The Fund need not be cash backed, but monies must be available when needed to produce the replacement properties.
7 ANNUAL RETURN ON THE DISPOSAL PROCEEDS FUND
7.1 RSLs must send the Corporation an annual return on the Disposal Proceeds Fund via the Investment Management System. This is a national return, and must be sent to the Corporation no later than 30th June each year.
7.2 The Corporation shall at the beginning of each financial year produce a DPF programme for the year (starting 1st April of the current year to 31st March of next year).
7.3 RSLs are responsible for ensuring returns are submitted at the due date. RSLs will no longer be able to submit RDF Returns after the deadline in paragraph 7.1 above, as the on-line system (IMS) will not be available. If RSLs miss the deadline they should contact their regional Investment Officer for further guidance. For all three-year old grant recovered, payment must be made to the Corporation within the financial year the submission is due.
7.4 As part of the on-line submission, an RSL certifies that it has complied with the procedures for RTA, SHB, VPG and the administration of the Fund. RSLs should ask their external auditors to include the operation of the DPF in their annual audit of the association.
7.5 A print of the return should be copied to the local authorities in which proceeds arose or were spent.
7.6 RSLs who are submitting a DPF return on IMS for the first time may send a manual return for previous years direct to the Corporation’s local office, who will advise them in what format any information will be required. These returns are required to be made on or before 31st December of the year in which the first electronic submission is being made.
7.7 Following receipt of information relating to previous years DPF from the Corporation’s local office, Maple House will input such information into IMS, only when it agrees with the accuracy of the returns. Maple House will liaise with RSLs directly where accuracy of any return is in question.
7.8 Upon completion of action regarding the previous year’s returns, the Corporation will notify RSLs in writing of the closing balance of that return. This figure is then to be used as the opening balance for the subsequent year’s return.
8 CALCULATION OF NOTIONAL INTEREST ON THE FUND
8.1 The Fund will accrue notional interest to be used for the same purposes as the Fund itself. Interest is not attributable to any particular local authority area and there is no need to attempt such an apportionment. The rate of notional interest is linked to the base lending rate announced by the Bank of England (except when the fund stands at less than £250,001).
8.2 While the Fund stands at no more than £250,000, the notional rate is that which an RSL would obtain by placing the money in the high interest deposit account operated by its own clearing bank. Therefore an RSL should keep a record of these rates available for its auditor.
8.3 While the Fund stands above £250,000, the notional rate is linked to the Bank of England’s base lending rate, as follows:
| Size of Fund | Rate of Notional Interest |
| £250,001 to £500,000 | Base lending rate minus 75 basis points
|
| £500,001 to £750,000 | Base lending rate minus 50 basis points
|
| £750,001 to £1,000,000 | Base lending rate minus 25 basis points
|
| Over £1,000,000 | Base lending rate |
8.4 The rates quoted are annual rates. Calculate notional interest on a daily basis according to a 365-day year convention, that is:
Balance x rate x (days/365)
8.5 The Corporation assumes that RSLs subject to Corporation Tax will incur such tax on their interest earnings. Therefore an RSL subject to Corporation Tax may deduct notional Corporation tax from its notional interest earnings. The deduction will be at the standard rate applying to large companies.
8.6 This is an example of the calculation of notional interest accruing on the Fund during the year 1 April to 31 March.
Assumptions:
- the Base Lending Rate opens at 7% but increases to 7.5% from 1 September;
- clearing Bank high interest deposit rate opens at 5% but increases to 5.35% from 1 September;
- the Corporation tax rate is 30%.
| Date | Receipt | Payment £ | Balance £ | % Rate | Days | Interest |
| 1 April | 100,000 | 100,000 | 5 | 47 | 643.84 | |
| 18 May | 200,000 | 300,000 | 6.25 | 38 | 1,952.05 | |
| 25 June | 300,000 | 600,000 | 6.5 | 53 | 5,663.01 | |
| 17 August | 125,000 | 475,000 | 6.25 | 15 | 1,220.03 | |
| 1 September | 475,000 | 6.75 | 26 | 2,283.90 | ||
| 27 September | 240,000 | 235,000 | 5.35 | 46 | 1,584.48 | |
| 12 November | 625,000 | 860,000 | 7.25 | 71 | 12,128.36 | |
| 22 January | 290,000 | 1,150,000 | 7.50 | 42 | 9,924.66 | |
| 5 March | 765,000 | 385,000 | 6.75 | 27 | 1,922.36 | |
| 1 April | 77,000 | 462,000 | 7.00 | |||
| 365 | 37,322.70 |
Notes
- When calculating the number of days, the convention is to count the number of midnights that the money is in the account, i.e. include the day it arrives but not the day it leaves;
- In a leap year one additional day's interest is earned, i.e. the actual day count includes 29 February and the day count total will be 366;
- Taxpayers would multiply the notional interest earnings of £37,322.70 by 70/100 to take account of Corporation Tax payable.
9 THREE YEAR REVIEW
9.1 The Corporation will carry out a 3-year review of the use of the Fund and thereafter monitor it annually. In the event of disposal proceeds being unspent at the end of a review period, the Corporation may recover the proceeds for recycling through the NAHP. For purposes of collection, the Fund becomes potentially collectable at the end of the third year after that in which the proceeds arose. For example, disposal proceeds received during 2003/2004 become potentially collectable on 1 April 2007.
10 STATUTORY ACCOUNTING REQUIREMENT
10.1 Section 24(5) of the Housing Act 1996 makes the presentation of the Fund in the statutory accounts a matter for determination by the Corporation. The Corporation has determined that the Fund shall appear as a creditor to be identified separately in a note to the accounts amongst the debts falling due. See the Accounting Requirements for Registered Social Landlords General Determination 2000, published with circular R2 - 04/01.
Click here for the Dispoal Proceeds Fund General Determination 1997
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