The Local Authorities (Capital Finance and Accounting) (England) Regulations 2003

PART 4 CAPITAL RECEIPTS

SUMS TO BE TREATED AS CAPITAL RECEIPTS

Repayment of loan etc. to a local authority

7.—(1) For the purposes of Chapter 1 of Part 1 (capital finance etc), the sums referred to in paragraph (2), paid on or after 1st April 2004, shall be treated as capital receipts.

(2) Subject to paragraph (3), the sums referred to for the purposes of paragraph (1) are sums paid to a local authority as repayment of any loan, grant or other financial assistance given by the local authority for such a purpose that, if the giving of that financial assistance had been expenditure incurred at the time of the repayment, it would have constituted capital expenditure(1).

(3) Where the financial assistance referred to in paragraph (2) is a loan given by a parish council or charter trustees, any sums paid to the local authority as repayment of that loan shall not be treated as capital receipts.

Disposal of mortgage portfolio

8.  For the purposes of Chapter 1 of Part 1, a sum received by a local authority on or after 1st April 2004 in respect of the disposal of the authority’s rights and obligations as mortgagee of any housing land which, apart from this regulation, would not be a capital receipt, shall be treated as a capital receipt.

Payment made to redeem landlord’s share

9.  For the purposes of Chapter 1 of Part 1, where an interim or final payment is made to a local authority, on or after 1st April 2004, in accordance with Schedule 6A to the Housing Act 1985 (redemption of landlord’s share)(2), the sum received by the authority shall be treated as a capital receipt if, apart from this regulation, it would not be a capital receipt.

SUMS NOT TO BE TREATED AS CAPITAL RECEIPTS

Capital receipts not exceeding £10,000

10.—(1) A sum received by a local authority which, apart from this regulation, would be a capital receipt by virtue of section 9(1) shall not be treated for the purposes of Chapter 1 of Part 1 as a capital receipt if the aggregate of all sums received or to be received by the authority in respect of the disposal of an interest in a capital asset, for which the sum is paid, does not exceed £10,000.

(2) A sum received by a local authority which, apart from this regulation, would be treated as a capital receipt by virtue of regulation 7, shall not be treated for the purposes of Chapter 1 of Part 1 as a capital receipt if the aggregate of all sums received or to be received by the authority as repayment of a loan, grant or other financial assistance, for which the sum is paid, does not exceed £10,000.

(3) A sum received by a local authority which, apart from this regulation, would be treated as a capital receipt by virtue of regulation 8, shall not be treated for the purposes of Chapter 1 of Part 1 as a capital receipt if the aggregate of all sums received or to be received by the authority in respect of the disposal of the authority’s rights and obligations, for which the sum is paid, does not exceed £10,000.

(4) A sum received by a local authority which, apart from this regulation, would be treated as a capital receipt by virtue of regulation 9, shall not be treated for the purposes of Chapter 1 of Part 1 as a capital receipt if the aggregate of all sums received or to be received by the authority in respect of redemption of the landlord’s share, for which the sum is paid, does not exceed £10,000.

(5) A notional capital receipt(3) which, apart from this regulation, would be treated as a capital receipt received by a local authority by virtue of regulation 22(5), shall not be treated for the purposes of Chapter 1 of Part 1 as a capital receipt if the aggregate of all sums received or to be received by the authority in respect of the disposal of the interest in housing land, for which the notional capital receipt is determined, does not exceed £10,000.

(6) In paragraphs (1) and (5), “all sums received or to be received by the authority” include the amount of all notional capital receipts determined in respect of the disposal.

Operating and finance leases

11.  A sum received by a local authority—

(a) under any arrangement which is treated, in accordance with proper practices, as an operating lease or a finance lease;

(b) which, apart from this regulation, would be a capital receipt; and

(c) which, in accordance with proper practices, is to be credited to a revenue account,

shall not be treated for the purposes of Chapter 1 of Part 1 as a capital receipt.

POOLING OF RECEIPTS

Pooling of receipts from disposals of housing land

12.—(1) This regulation applies to capital receipts which—

(a) a local authority derives from the disposal of an interest in housing land other than a disposal which is a qualifying disposal; and

(b) on or after 1st April 2004, have been received by the local authority.

(2) Subject to paragraph (3), where this regulation applies, the local authority shall use capital receipts to pay the amount specified in paragraph (4) (“the specified amount”) to the Secretary of State on or before—

(a) the last day of the calendar month immediately following—

(i) 31st March;

(ii) 30th June;

(iii) 30th September; or

(iv) 31st December,

whichever of those is the earliest date following the day on which the authority receives the capital receipt; or

(b) if later, such date as is notified to the local authority by the Secretary of State.

(3) Where it is not reasonably practicable for the local authority to calculate the specified amount by the date on or before which it is payable under paragraph (2) (“the due date”)—

(a) the amount to be paid by the due date shall be instead the local authority’s best estimate of the specified amount (“the estimated amount”);

(b) the local authority shall notify the Secretary of State in writing, at the time of payment, that it is paying the estimated amount rather than the specified amount;

(c) the local authority shall—

(i) provide the Secretary of State with a statement of the specified amount, the estimated amount, and the amount which is equal to the specified amount less the estimated amount already paid (“the balance”); and

(ii) if the balance is positive, pay that amount to the Secretary of State,

by no later than 30th June in the financial year immediately following the financial year in which the capital receipt was received; and

(d) if the balance is negative, the Secretary of State shall repay to the local authority, as soon as reasonably practicable after he receives the local authority’s statement, the amount it paid in excess of the specified amount.

(4) Subject to reductions made under regulations 14 to 21, the specified amount is an amount equal to—

(a) 75 per cent of the capital receipt in relation to the disposal of a dwelling; and

(b) 50 per cent of the capital receipt in relation to the disposal of any other interest in housing land.

(5) The total amount of any reductions made to the capital receipt for a disposal under regulations 14 to 21, shall not exceed the amount of that capital receipt.

Interest on late payments

13.—(1) Where all or part of the specified amount is not paid by the local authority to the Secretary of State on the due date, the local authority shall use capital receipts, which it has derived from the disposal of an interest in housing land, to pay to him interest on the unpaid amount.

(2) The interest shall be calculated at one per cent. above base rate on a day to day basis from the due date to the date of payment and compounded with three-monthly rests.

(3) In this regulation—

“base rate” means the base rate for the time being quoted by the reference banks or, where there is for the time being more than one such base rate, the rate which, when the base rate quoted by each bank is ranked in descending sequence of seven, is fourth in the sequence; and

“reference banks” means the seven largest persons for the time being who—

(a)

have permission under Part IV of the Financial Services and Markets Act 2000 (permission to carry on regulated activities)(4) to accept deposits;

(b)

are incorporated in the United Kingdom and carrying on there a regulated activity of accepting deposits; and

(c)

quote a base rate in sterling,

and for the purpose of this definition the size of a person at any time is to be determined by reference to the gross assets denominated in sterling of that person, together with any subsidiary (as defined in section 736 of the Companies Act 1985 (“subsidiary”, “holding company” and “wholly owned subsidiary”)(5)), as shown in the audited end-of-year accounts last published before that time.

Capital receipt treated as reduced

14.—(1) Subject to regulation 12(5) and paragraph (2), for the purposes of calculating the specified amount, the capital receipt in relation to the disposal of the interest in housing land shall be treated as reduced by—

(a) so much of the capital receipt as is applied by the local authority in meeting the administrative costs of and incidental to the disposal;

(b) the costs of expenditure incurred by the local authority in improving the housing land within the period of three years ending on the date of the disposal; and

(c) an amount, by which the authority determines that it shall be reduced, which may be an amount up to the value of its available capital allowance at the time the specified amount is calculated.

(2) Paragraph (1)(c) shall not apply to capital receipts which a local authority derives from the disposal of a dwelling where the disposal is made—

(a) under Part V of the Housing Act 1985 (right to buy)(6); or

(b) with a relevant consent, to a person who, when he acquires that dwelling, occupies or intends to occupy the dwelling as his only or principal home.

(3) For the purposes of paragraph (2)(b), “relevant consent” means a consent to a disposal of land given by the Secretary of State to local authorities generally under section 32 or 43 of the Housing Act 1985 (disposal of land held for housing purposes)(7).

Available capital allowance

15.  For the purposes of regulation 14(1)(c), the value of a local authority’s available capital allowance at a particular time is the value of its total capital allowance at that time, as determined by the authority in accordance with regulation 16, less the total value of any amounts by which capital receipts have been treated as reduced by virtue of regulation 14(1)(c) prior to that time.

Total capital allowance

16.—(1) For the purposes of regulation 15, a local authority’s total capital allowance is the total value of—

(a) the amount of any reduction determined by the authority before 1st April 2004 under regulation 104B(4) of the Local Authorities (Capital Finance) Regulations 1997 (disposal of land to assist in the provision of affordable housing)(8) where—

(i) no capital receipts were treated as reduced by that amount, for the purposes of section 59 of the Local Government and Housing Act 1989 (the reserved part of capital receipts)(9), before 1st April 2004; and

(ii) capital receipts could be treated as reduced by that amount under regulation 104B, for the purposes of that section, but for the repeal of that section on 1st April 2004(10).

(b) to the extent not included in sub-paragraph (a), the costs of expenditure incurred by the authority, for the purpose of facilitating the disposal of an interest in land, on—

(i) obtaining planning permission for the development of the land, or taking any other steps required to facilitate such development;

(ii) preparing the land for development;

(iii) acquiring an interest, easement, servitude or right in or over the land or adjoining land; or

(iv) obtaining the release of a restrictive covenant affecting the land,

where capital receipts derived from the disposal are capital receipts to which regulation 12 applies;

(c) to the extent not included in sub-paragraph (a) or (b), the amount of the contributions which the authority has made, or has decided to make but has not yet made, on or after 1st April 2004, towards the costs of the projects specified in regulations 17 and 18 by —

(i) constructing or improving dwellings, or providing dwellings by the conversion of a building or a part of a building;

(ii) making a gift of land;

(iii) paying a contribution, grant or subsidy under any power conferred on the authority under any enactment; or

(iv) giving consideration for any benefit that the authority has received, or will receive, by virtue of the project.

(2) For the purposes of paragraph (1)(c)(ii), the authority makes a gift of land where it transfers an interest in land and either —

(a) no consideration falls to be given for the transfer; or

(b) the value of the consideration that falls to be given for the transfer is less than the price that the interest transferred would realise at the date of the valuation if sold by the authority on the open market.

Provision of affordable housing

17.—(1) In this regulation “provision of affordable housing” means the provision of dwellings to meet the housing needs, as identified by the local authority, of persons on low incomes, whether provided by the authority or a social landlord registered under section 1 of the Housing Act 1996 (the register of social landlords)(11).

(2) For the purposes of regulation 16(1)(c), the provision of affordable housing is a specified project.

Regeneration projects

18.—(1) In this regulation —

“regeneration project” means any project for the carrying out of works or activities on any land where —

(a)

the land, or a building on the land, is vacant, unused, under-used, ineffectively used, contaminated or derelict; and

(b)

the works or activities are carried out in order to secure that the land or the building will be brought into effective use.

(2) For the purposes of regulation 16(1)(c), the undertaking of a regeneration project on land situated within the area of the local authority is a specified project.

Capital receipts reduced by costs of buying back “right to buy” dwellings

19.—(1) Subject to regulation 12(5), for the purposes of calculating the amount specified in regulation 12(4)(a), a capital receipt derived from a disposal by a local authority of an interest in a dwelling, which meets the conditions specified in paragraph (2), shall be treated as reduced by an amount determined in accordance with paragraph (3).

(2) For the purposes of paragraph (1), the disposal meets the conditions specified in this paragraph if—

(a) prior to the disposal, an interest in the dwelling was disposed of by the local authority under Part V of the Housing Act 1985 (right to buy)(12) (“the initial sale”);

(b) within the period of five years beginning on the date of the initial sale, the local authority reacquired that interest in the dwelling (“the repurchase”);

(c) the disposal is made by the authority within the period of three years beginning on the date of the repurchase;

(d) the authority makes the initial sale and the disposal by, in each case—

(i) conveying the freehold interest in the dwelling;

(ii) granting a lease of the dwelling for a term of not less than 125 years;

(iii) assigning its entire leasehold interest in the dwelling; or

(iv) granting a shared ownership lease; and

(e) where the interest disposed of is a lease other than a shared ownership lease, the authority estimates that not less than 90 per cent. of the capital value of the lease has been, or is to be, received by it within one year of the date of the disposal.

(3) The amount of the reduction for the purposes of paragraph (1) is—

X + Y

where—

• X is the amount of expenditure incurred by the authority on the repurchase; and

• Y is the amount of the administrative costs of and incidental to the repurchase.

(4) In this regulation, “shared ownership lease” means a lease of a dwelling granted on payment to the local authority of a premium which is calculated by reference to a percentage of the value of the dwelling or of the cost of providing it, and is not less than 25 per cent. of that value or cost.

Capital receipts reduced by costs of buying back dwellings in the preceding year

20.—(1) Subject to regulation 12(5), for the purposes of calculating the amount specified in regulation 12(4)(a), a capital receipt derived from a disposal by a local authority of an interest in a dwelling, which meets the conditions specified in paragraph (2), shall be treated as reduced by an amount determined in accordance with paragraph (3).

(2) For the purposes of paragraph (1), a disposal meets the conditions specified in this paragraph if—

(a) the authority makes the disposal by—

(i) conveying the freehold interest in the dwelling;

(ii) granting a lease of the dwelling for a term of not less than 125 years;

(iii) assigning its entire leasehold interest in the dwelling; or

(iv) granting a shared ownership lease; and

(b) where the interest disposed of is a lease other than a shared ownership lease, the authority estimates that not less than 90 per cent. of the capital value of the lease has been, or is to be, received by them within one year of the date of the disposal.

(3) The amount of the reduction for the purposes of paragraph (1) is—

A - B

where—

• A is 47 per cent. of the amount, if any, by which the total net expenditure exceeds the sum of £50,000; and

• B is the total amount, if any, by which capital receipts of the authority have already been reduced in the current year under this regulation.

(4) In this regulation—

“current year”, in relation to any capital receipts for a disposal, means—

(a)

in the case of notional capital receipts, the financial year in which the disposal is made; and

(b)

in any other case, the financial year in which the capital receipts are received;

“new town corporation”, “housing action trust” and “urban development corporation” have the same meaning as in section 4 of the Housing Act 1985 (other descriptions of authority)(13);

“preceding year”, in relation to any capital receipts, means the financial year immediately preceding the current year;

“shared ownership lease” has the same meaning as in regulation 19; and

“total net expenditure” is—

C - D

where—

(i)

C is the total amount of expenditure incurred by the local authority in the preceding year on acquiring relevant interests in land (including the administrative costs of and incidental to any such acquisitions); and

(ii)

D is the total amount of reductions made by the authority under regulation 19 in the preceding year by virtue of expenditure on repurchases incurred in that year and administrative costs of and incidental to repurchases incurred in that year.

(5) In this regulation, an interest in land is a relevant interest if—

(a) it is the freehold interest or a leasehold interest in a dwelling and is not acquired pursuant to a compulsory purchase order;

(b) the freehold interest or a leasehold interest in the dwelling has previously been disposed of by the authority, another local authority, a new town corporation, a housing action trust or an urban development corporation; and

(c) the person from whom it is acquired is not a body of persons corporate or unincorporate.

Transitional reductions for debt-free authorities

21.—(1) Where a local authority was a debt-free authority on 31st March 2004, for the purposes of calculating the specified amount, the capital receipt may be treated as reduced in accordance with paragraph (2).

(2) Subject to regulation 12(5) and paragraph (3), after the local authority has made any reductions to the amount of the capital receipt under regulations 14 to 20, the resulting amount of the capital receipt may be treated as further reduced—

(a) in relation to any capital receipt received in the financial year beginning on 1st April 2004, by up to 75%;

(b) in relation to any capital receipt received in the financial year beginning on 1st April 2005, by up to 50%; and

(c) in relation to any capital receipt received in the financial year beginning on 1st April 2006, by up to 25%.

(3) The total amount of—

(a) any reduction to a capital receipt calculated under paragraph (2), in relation to a financial year in which the capital receipt was received; and

(b) any reductions previously made under paragraph (2) in relation to that financial year,

shall not exceed the total amount of housing expenditure which the local authority, at the time when the reduction referred to in sub-paragraph (a) is calculated, has incurred in that financial year or has decided in that financial year to incur but has not yet incurred.

(4) In this regulation—

“housing expenditure” means expenditure incurred or to be incurred by the local authority when discharging functions in its capacity as local housing authority; and

“local housing authority” has the same meaning as in section 1 of the Housing Act 1985 (local housing authorities)(14).

Non-money receipts

22.—(1) Subject to paragraphs (2) to (4), where on or after 1st April 2004 a local authority makes a disposal, other than a qualifying disposal, of an interest in housing land—

(a) which is a disposal of the kind mentioned in section 9(1) (capital receipt) and the consideration for the disposal does not consist wholly of money payable to the authority; or

(b) in respect of which the authority receives otherwise than in the form of money any consideration which, if received in that form, would be a capital receipt under section 9,

the authority shall determine the amount (the “notional capital receipt”) which would have been the capital receipt if the consideration for the disposal had been wholly in money payable to the authority.

(2) Where money is payable to the authority in respect of the disposal, the notional capital receipt shall be determined by deducting the amount of that money from the amount which would have been the capital receipt if the consideration for the disposal had been wholly in money payable to the authority.

(3) Where the consideration for the disposal, or part of the consideration, consists of —

(a) the grant of a right to the local authority to nominate a person either to occupy any dwelling or to acquire the freehold of, or a leasehold interest in, any dwelling; or

(b) an undertaking given to the local authority to allow only a person of a particular description to occupy any dwelling or acquire the freehold of, or a leasehold interest in, any dwelling,

the amount of the notional capital receipt in respect of that consideration or that part of the consideration, as the case may be, shall be treated as nil.

(4) For the purposes of determining the notional capital receipt for a disposal, the consideration for the disposal shall be deemed to be received by the authority at the time that the authority makes the disposal.

(5) For the purposes of Chapter 1 of Part 1, a notional capital receipt shall be treated as a capital receipt and the amount specified in regulation 12(4) shall be calculated accordingly.

MISCELLANEOUS

Use of capital receipts

23.  Capital receipts may only be used for one or more of the following purposes—

(a) to meet capital expenditure;

(b) to repay the principal of any amount borrowed;

(c) to pay a premium charged in relation to any amount borrowed;

(d) to meet any liability in respect of credit arrangements, other than any liability which, in accordance with proper practices, must be charged to a revenue account;

(e) to meet the administrative costs of or incidental to a disposal of an interest in housing land; or

(f) to make a payment to the Secretary of State under regulation 12 or 13.

(1)

See section 16 (“capital expenditure”) and regulations 25 and 26.

(2)

1985 c. 68; Schedule 6A was inserted by section 117(2) of, and Schedule 16 to, the Leasehold Reform, Housing and Urban Development Act 1993 (c. 28). There are amendments to Schedule 6A that are not relevant to these Regulations.

(3)

See regulation 22 for meaning of “notional capital receipt”.

(4)

2000 c. 8, to which there are amendments not relevant to these Regulations.

(5)

1985 c. 6; section 736 was substituted for section 736 as originally enacted by section 144(1) of the Companies Act 1989 (c. 40).

(6)

1985 c. 68.

(7)

Sections 32 and 43 were amended by paragraphs 38 and 39 of Schedule 17 to the Housing Act 1988 (c. 50), section 227 of, and Part IX of Schedule 19 to, the Housing Act 1996 (c. 52) and S.I. 1997/74. Section 43 was also amended by section 132 of the Housing Act 1988 (c. 50), section 194(2) of, and Schedule 12 to, the Local Government and Housing Act 1989 (c. 42) and section 78 of, and paragraph 24(1) of Schedule 10 to, the Environment Act 1995 (c. 25).

(8)

S.I. 1997/319; regulation 104B was inserted by S.I. 2003/43.

(9)

1989 c. 42.

(10)

See S.I. 2003/2938 (C. 107).

(11)

1996 c. 52; section 1 was amended by section 140 of, and paragraphs 82(1)(a) and 83 of Schedule 16 and Part VI of Schedule 18 to, the Government of Wales Act 1998 (c. 38).

(12)

1985 c. 68.

(13)

Section 4 was amended by section 62(7) of the Housing Act 1988 (c. 50). There are other amendments to section 4 that are not relevant to these Regulations.

(14)

1985 c. 68; there are amendments to section 1 which are not relevant to these Regulations.