U.K. looks at establishing housing tax credit

By Donna Kimura

There's a push in the United Kingdom to create a program similar to the successful low-income housing tax credit (LIHTC) program in the United States.

Housing advocates there have gotten behind a proposal to help stimulate affordable housing development and urban renewal in their country.

The proposed Housing and Regeneration Tax Credit (HART credit) combines some of the best elements of the U.S. low-income housing, historic and proposed homeownership tax credits, said David A. Smith, founder of the Affordable Housing Institute, a Boston-based nonprofit international consultancy group specializing in affordable housing. Smith is also president of Recapitalization Advisors, Inc.

The credit, which is under serious consideration but still probably about two or three years away, is proposed to be a pound-for-pound reduction in income tax payable by an investor.

"The proposal is designed to work with mixed-use, mixed-tenure and mixed-income projects," he explained. That makes sense in the United Kingdom, considering that many flats in the urban areas are located above stores and businesses. HART is also expected to work in the preservation of the region's many historic properties.

In Great Britain, the proposed tax credit is intended to be flexible enough to help address urban redevelopment, which tends to be an issue in the north, as well as the affordable housing needs found in the south.

In some ways, the HART proposal improves on the LIHTC program, Smith said, noting that it is much less specific in statute and calls for a faster delivery of the credits than in the United States.

Dan Anderson, senior vice president in the Community Development Banking Group at Bank of America, has also been a key resource for U.K. officials.

"There are many important parallels in North American practice that the United Kingdom can benefit from," he said, noting that the affordable housing and urban renewal issues in the countries share similarities. Baltimore, for example, has faced many of the same challenges of disinvestment and renewal as Liverpool.

The delivery mechanics of the proposed program are the same as for the LIHTC, according to Smith. Sponsors would compete for the credits from a government allocator, and winning sponsors would then sell the credits for cash to an investor. The market competition would determine the price of the credits.

Under the plan, the annual authority would be £5 per capita or £250 million in England. That's approximately $443 million in U.S. money based on late-December exchange rates.

The establishment of the HART credit could have an effect on U.S. corporate investors—particularly those involved in developing or investing in real property who have U.K. tax liability. As a result, they may become potential investors. Some large U.K. banks have also expressed some early interest.

Bank of America, a leading LIHTC and historic tax credit investor, maintains a limited banking presence in the United Kingdom. If the credit is enacted, there may be some opportunity to help existing clients and new ones there examine the use of the credit, Anderson said. "It's a natural venue for U.K. banks, and perhaps some U.S. banks with some measure of involvement in the United Kingdom," he said.

He added that the HART credit could have another effect in the United States. As a program evolves overseas, it may reveal some useful refinements for the LIHTC program in the United States.

Overall, it is going to take some education and selling for the HART credit to be enacted, Smith said.

The strong 15-year track record of the LIHTC program, however, gives weight to the proposal.

In the United Kingdom, developers have traditionally used government grant money to build projects. There is some concern that a tax credit would take away from the grants, but supporters are stressing that the HART credit would be complementary, Smith said.

"I remain optimistic that it will be enacted," he said.

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