DPF - Contributions to the Fund

2 Contributions to the Fund

2.1 General

2.1.1 Contributions to an RSL’s Disposal Proceeds Fund can accrue from three sources:

proceeds of sale
repayment of discounts where a purchaser under RTA, SHB or VPG sells on within 3 or 5 years (see the RTA Chapter Section 5.2)
notional interest on the Fund balances.

2.2 Gross & Net Disposal Proceeds

2.2.1 The Gross Disposal Proceeds of sale is the Market Value of the property, which consists of payment from the purchaser and the Purchase Grant paid towards the discount.

2.2.2 Eligible Deductions from the Gross Disposal Proceeds are:

the attributable loan debt
valuation fees incurred by the RSL;
legal fees incurred by the RSL;
survey fees (sale of flats only) incurred by the RSL;
RTA/VPG/SHB allowance (click here to go to the current allowances)

2.2.3 The Net Disposal Proceeds are the Gross Disposal Proceeds less the Eligible Deductions

2.2.4 As all the Net Disposal Proceeds transfer into the Fund, there is no separate repayment of any Housing Association Grant or Social Housing Grant that may have helped fund the original provision of the property.

2.2.5 The cost of abortive valuation, legal and survey fees may be deducted from the sale proceeds of a subsequent sale which goes ahead, provided this does not result in a negative amount recorded in the Fund. If deductions would lead to a negative amount, the balance of abortive costs must be deferred until the next sale that proceeds.

2.2.6 In order to calculate the Net Disposal Proceeds, the RSL must establish the amount of public subsidy that they have received on the dwelling. RSL should note that this calculation is based on the original acquisition and construction only. Subsequent grant paid eg for major repairs is excluded from the calculation.

2.2.7 Equally, the Purchase Grant received by the RSL to cover the RTA/SHB discount, is NOT included in the calculation of SHG/OPS received, when calculating the deemed loan debt.

2.2.8 Worked examples: Click on the asterisk for some worked examples of how to calculate the contribution to the DPF for:

A dwelling funded by SHG/OPS for a "traditional" RSL
a dwelling transferred from a local authority (an LSVT RSL)
a dwelling developed without public subsidy.

2.3 Social HomeBuy

2.3.1 Where an Initial Sale is less than a 100%, and the Social HomeBuy purchaser purchases further shares, a similar approach as used for Shared Ownership / New Build HomeBuy is adopted. RSLs are able to deduct an allowance to cover their legal and admin costs in relation to sales of further shares. This staircasing allowance will be a standard rate equivalent to the initial sales allowance for a house regardless of whether the property is a house or flat.

2.3.2 The Gross Disposal Proceeds must not be below the applicable proportion of a Valid Valuation by an Independent Qualified Valuer.

2.3.3 If the Net Disposal Proceeds (the Gross Disposal Proceeds less the Eligible Deductions) are insufficient to enable the recovery of all the attributable deemed loan debt, then the shortfall can be deferred.

For a worked example click on the asterisk.

2.3.4 When the property is subsequently staircased to outright ownership, and it is still not possible to discharge the deemed loan debt attributable to that dwelling the final shortfall will be written off.

2.4 Proceeds from Repayment of Discounts

2.4.1 Where RTA, SHB or VPG purchasers sell on within the prescribed timescales, the repayment of discount is credited to the Fund. For details on those timescales refer to RTA 5.2. From April 2008, each further SHB discounts will be subject to its own five year repayment period. Please see SHB 9.2.2a

2.5 Notional Interest

2.5.1 The Fund will accrue notional interest to be used for the same purposes as the Fund itself. Interest is not attributable to any particular local authority area and there is no need to attempt such an apportionment. The rate of notional interest is linked to the base lending rate announced by the Bank of England (except when the fund stands at less than £250,001).

2.5.2 While the Fund stands at no more than £250,000, the notional rate is that which an RSL would obtain by placing the money in the high interest deposit account operated by its own clearing bank. Therefore an RSL must keep a record of these rates available for its auditor.

2.5.3 While the Fund stands above £250,000, the notional rate is linked to the Bank of England’s base lending rate, as follows:

Size of Fund Rate of notional interest
£250,001 to £500,000 Base lending rate minus 75 basis points
£500,001 to £750,000 Base lending rate minus 50 basis points
£750,001 to £1,000,000 Base lending rate minus 25 basis points
Over £1,000,000 Base lending rate

2.5.4 The rates quoted are annual rates. RSLs must calculate notional interest on a daily basis according to a 365-day year convention, that is:

Balance x rate x (days/365)

2.5.5 The Agency assumes that RSLs subject to Corporation Tax will incur such tax on their interest earnings. Therefore an RSL subject to Corporation Tax may deduct notional Corporation tax from its notional interest earnings. The deduction will be at the standard rate applying to large companies.

2.5.6 For an example of the calculation of notional interest, click on the asterisk.

2.6 Transferring Balances between RSLs

2.6.1 From 17 November 2008, the Disposal Proceeds Fund determination has been revised. The effect of this is that an RSL may, in the circumstances defined below, transfer all or some of its DPF to another RSL, where this helps create a usable balance and/or supports the quick and efficient use of DPF to meet statutory requirements and regional priorities – see Permitted Uses.

2.6.2 Transfers may occur between RSLs which are:
1. members of a group structure (although each must have its own DPF);
2. members of a Development Partnership which is currently in receipt of SHG;
3. specialist RSLs (eg BME or supported housing providers).

2.6.3 Transfers may also occur, subject to prior agreement of the Regional Investment Team covering the transferring association, where these are:
• to another local RSL;
• to a similar type of RSL (eg a housing co-operative or almshouse).

2.6.4 The importing RSL must ensure:
• it documents the transfer;
• it receives notification from the exporting RSL of the date on which each sum within the amount being transferred was first credited
• the date on which it credits its own DPF is no more than one day after the date of debiting the DPF shown by the transferor.

2.6.5 Transfer of sums from one exporting RSL to another importing RSL does not restart the 3 year timetable.

2.6.6 Transferred sums must be specifically identified in Annual Returns (please see Reporting and Audit 5.2), to avoid the possibility of double counting withdrawals and inputs.