Budget was light on new announcements directly impacting the UK real estate sector. It included confirmation of the introduction of the much-anticipated residential property developer tax (RPDT), which is expected to have a significant impact for real estate developers, as well as the qualifying asset holding company (QAHC) regime. There were financial pledges for housing and funding for infrastructure projects as well as additional announcements extending investment reliefs through the capital allowances and business rates regimes. This reflects a Government seeking to stimulate investment in the UK following the COVID-19 pandemic.
As expected, the Chancellor confirmed the introduction of the new RPDT. This will come into effect from 1 April 2022. Broadly, companies carrying out UK residential property development (RPD) activities will be subject to RPDT at a rate of 4% on RPD profits in excess of an annual allowance of £25 million a year. The RPDT will be included within the existing UK corporation tax rules. Any tax due will be reported, and paid, through the corporation tax return. The consultation response confirms that the RPDT is not intended to apply to build-to-rent (BTR) investors, and an exemption for non-profit housing companies has recently been included as well. Student accommodation and care homes are excluded, but the retirement living sector is not.
QAHCs & UK funds regime
A new tax regime for QAHCs will come into effect from 1 April 2022. The legislation is expected to have a significant impact for the wider UK funds sector. For real estate, the new QAHC regime is likely to be an attractive alternative to overseas fund structures for pan-European property investors. A QAHC is exempt from UK tax on gains on disposals of specific shares and overseas property, as well as profits of an overseas property business that are subject to tax in an overseas jurisdiction. A number of other measures designed to simplify the taxation of financing arrangements for QAHCs will also be introduced to ease the tax and administrative burden.
As part of the wider UK funds regime review, technical changes are also being made to the real estate investment trust (REITs) regime. These will come into effect from 1 April 2022. They include a relaxation of the listing condition where institutional investors hold at least 70% of the ordinary share capital of the REIT. The ‘holders of excessive rights’ rule, which penalises a REIT with corporate shareholders who own more than 10%, will not apply to shareholders who are entitled to receive property income distributions gross.
The temporary increased Annual Investment Allowance (AIA), of £1m for all qualifying plant and machinery (P&M), will be extended until 31 March 2023, rather than reverting to £200k from 1 January 2022. This is available alongside the 130% super deduction for main rate P&M and the 50% first year allowance for special rate P&M announced in the Spring 2021 Budget.
The Chancellor cancelled next year’s 3% planned increase in the multiplier. There will, however, be more frequent valuations; every three years, starting from 2023. From 2023, a new business rates relief will be available for businesses that make improvements to a property they occupy so they will not be subject to increased business rates for 12 months after making the qualifying improvements. Further exemptions will also be introduced where taxpayers have invested in eligible plant and machinery used for onsite renewable energy generation and storage, which are due to last until 2035. The Chancellor has given businesses in the retail, hospitality & leisure industries an additional year of relief; they will be able to claim a 50% discount off their business rates, up to £110,000 for 2022/23.
At Spring Budget 2021, the Government announced eight Freeports across England, and reaffirmed its intention to create further sites, including in Scotland, Wales and Northern Ireland. The first tax sites will be Humber, Teesside, and Thames, which should become active from November. The maps for the first Freeport sites has been published, here.
Capital Gains Tax (CGT)
Despite much speculation, there were no changes to CGT rates. UK resident individuals, trustees and personal representatives disposing of UK residential property that gives rise to a chargeable gain now have 60 days to declare and pay any CGT on account. This is an increase from the former 30 day deadline and applies to any disposal completing on or after 27 October 2021. The extension also applies to non-UK resident persons who are obliged to make CGT declarations in relation to disposals of residential or commercial property or shares in ‘property-rich’ companies.
SDLT & ATED
There were no new announcements on Stamp Duty Land Tax (SDLT). Legislation was recently introduced to give SDLT relief for purchases of land and buildings within a Freeport site until 30 September 2026. The asset must be used for qualifying purposes and relief can be withdrawn throughout a control period of 3 years.
As expected, the Annual Tax on Enveloped Dwellings (ATED) will be increased in line with inflation (3.1%) from 1 April 2022. Unfortunately, there were no relaxations to the administrative aspects of the tax.