Distribution: to all registered social landlords (excluding co-ownership societies), and their auditors

1 Introduction

1.1 A new guide to recovery and recycling of capital grant (Housing Association Grant and Social Housing Grant) was issued with Corporation circular F2 - 21/97. This guide is referred to as 'the Guide' in this circular. For almost all relevant events - sales, change of use, etc. - occurring from 1 April 1997 a Registered Social Landlord (RSL) can recycle the recoverable capital grant within its own finances. The various grant recovery forms have been updated and copies are attached. Further copies are available from the Corporation's regional offices.

1.2 Circular F2 - 21/97 announced a new annual return for the Recycled Capital Grant Fund (RCGF), replacing form GR6 - Quarterly Disposals Return. Details of this new return are given in section 5 below. The first return, for the year ending on 31 March 1998, must be received by the Corporation by 31 July 1998.

1.3 An RSL has several options in respect of the RCGF. It may:

1) decide not to have a recycling fund because it has not had any relevant events (sales, changes of use etc.) since 1 April 1997. In such circumstances, no action is necessary by the RSL. The Corporation is examining the feasibility of a composite annual report from external auditors to the Corporation on all returns which currently require an auditor's report. It is anticipated that this composite report will indicate whether or not the RSL has had any capital grant activity in the year.

2) decide not to have an RCGF. Instead, all recoverable capital grant will be paid to the Corporation, continuing the system which operated up to 31 March 1997. If any relevant events occur in the year to 31 March, or property has been void for at least six months at 31 March, a summarised return will be necessary (see paragraph 5.4 below). The reason is that the Corporation requires independent confirmation from external auditors that the Corporation has received all recoverable capital grant due to it, and is notified of all long-term void properties.

3) decide to have an RCGF. The Corporation's policy and procedures will be followed, as published in the Guide with circular F2 - 21/97, this circular, and any revisions. The Corporation will not wish to see the forms relating to the inputs to, and outputs from, the RCGF, but will require an annual return.

4) decide to have an RCGF but, at some later time, decide to cease having one. The RSL must pay to the Corporation the balance on the RCGF plus interest to date, together with an annual return completed up to the date of closing this fund.

1.4 Where an RSL maintains a Recycled Capital Grant Fund, the forms and supporting documentation should be kept for six years (see the Guide paragraph 24.3).

1.5 These forms and the annual return must not be used for sales involving Voluntary Purchase Grant or the Right to Acquire, or for the Disposal Proceeds Fund.

1.6 The issue of circular F2 - 21/97 and the new Guide has prompted various questions. The most frequently asked questions are answered in section 6 of this circular.

2 Outright sale of property - form RCG1

2.1 This replaces form RG.

2.2 The form has been simplified and should be self-explanatory when completed in accordance with the definitions and calculations contained in the Guide.

3. Shared ownership staircasing sales - form RCG2

3.1 This replaces form STG.

3.2 The layout broadly follows form RCG1. The main differences are:

- Part B has a provision for inclusion of recoverable capital grant deferred from a previous staircasing within the same project, and writing off any capital grant that cannot be recovered (see the Guide section 6.6);

- Part C calculates the sale proceeds for the percentage of the property sold;

- Part D calculates the Deemed Loan Debt for the percentage of the property sold (see the Glossary of the Guide for Deemed Loan Deb