A provider of affordable rental housing whom we have insured in the past approached us to provide a further policy on the inherent SDLT risk which arises when they acquire properties from developers which are acquired once the developers have begun construction works.

A question arose as to whether SDLT is payable by the provider of affordable rental housing on the value of expenditure incurred on the development of the properties. The local authorities typically grant planning permission to the developers provided the developers construct and deliver an element of the affordable housing as part of the overall development. In order for the sale to qualify for zero-rating for VAT purposes, the provider acquires each block after the developer has started the construction works. The risk is therefore if the provider is required to pay SDLT on the cost of the construction works and not just on the consideration for the acquisition of the land and the development costs incurred prior to the acquisition of the land. This is a common SDLT risk we see.

An insurance policy was issued for the provider (buyer) as the provider wanted certainty to prevent an unexpected liability in the future.