Corporation tax changes impacting housing associations and their subsidiaries

Changes being introduced by the Finance (No. 2) Bill 2023 will reduce the options available to housing associations and their subsidiary companies for mitigating their exposure to corporation tax.

Many subsidiaries of charitable housing associations have mitigated their exposure to corporation tax by donating their taxable profits to their parent housing association. While effective from a mitigation perspective, this is not without its challenges. For example, the donation must be made in cash by the subsidiary, which can be a problem if there is a mismatch between taxable profits and available cash, which can often be the case if the subsidiary is party to a joint venture.

In addition, by donating the full amount of its profits, each year the subsidiary will leave itself with no, or very little, reserves, and hence an apparently weak balance sheet which can lead to commercial issues if the subsidiary trades with third parties. Furthermore, if the required donation is greater than the subsidiary company’s distributable reserves, for example, due to a mismatch between tax and accounting profits, then it may not be possible to completely mitigate the subsidiary company’s liability to corporation tax.

However, in most cases it is also possible for subsidiaries of charitable housing associations to mitigate their exposure to corporation tax by claiming relief for a proportion of the net interest paid by their charitable parent. In such circumstances, no payment would need to be made by the subsidiary company to the parent housing association, meaning that the subsidiary can usually retain the full amount of its profits without a liability to corporation tax.

This is extremely useful where the subsidiary company wishes to accumulate reserves for commercial reasons (for example – so that it is more credit-worthy in the eyes of its suppliers) or if it is unable to gift the full amount of its taxable profits to its parent housing association (for example – because of a mismatch between the level of tax and accounting profits, or between tax profits and available cash).

Similarly, charitable housing associations have been able to set their net interest payments against certain types of income (for example – Feed in Tariff income) received in future periods, which would otherwise be subject to corporation tax because they fall outside of the charitable exemptions.

However, Finance (No 2) Bill 2023, which was published shortly after the Spring Budget, contains provisions that will prevent interest costs incurred by charitable housing associations from being claimed by subsidiaries or carried forward to future periods with effect from 1 April 2023.

So it seems the year ended 31 March 2023 could be the last year in which a charitable housing association will be able to use its interest costs to mitigate tax on Feed in Tariff income (for example), or to mitigate their exposure to corporation tax profits earned by its subsidiary companies. Housing associations should therefore carefully consider taking advantage of the available reliefs in their tax returns for periods to 31 March 2023, while they still can.

From 1 April 2023 it will still be possible for subsidiary companies to mitigate their exposure to corporation tax by gifting their profits to a charitable group entity, but in many cases, this might then be the only option available to them.


RSM is a leading provider of audit, tax and consulting services, with around 3,800 partners and staff in the UK. We're working with our tax advisors RSM to help shape government policy on taxation as it affects the sector and to keep housing associations informed of key issues.

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Who to speak to

Adam Gravely, Finance Policy Officer