After a series of fairly fundamental changes to the taxation of real estate, this Budget was relatively quiet in terms of new property specific announcements but more general changes could have a significant impact for those in the industry.
Over recent years, we have seen a continuing theme of ‘levelling the playing field’ in real estate between the tax treatment of UK residents and non-UK residents, between gains on residential and non-residential property and with non-UK resident company landlords brought within the charge to corporation tax rather than income tax to align their treatment with UK companies holding property. Much of this was announced in the Autumn Budget 2017. It is interesting now to see the Government tip the scales in favour of UK residents by proposing a 1% Stamp Duty Land Tax (SDLT) surcharge on non-UK residents acquiring residential property in England and Northern Ireland.
Announced at the Conservative Party Conference, the surcharge was billed as part of Theresa May’s personal mission to fix the ‘broken’ housing market. Alongside planning reforms and funding packages, the Budget included two further tax measures in this area. The first is an extension (and backdating) of first-time buyers’ relief from SDLT in England and Northern Ireland for all qualifying shared ownership property purchasers. The second is a consultation on tightening the private residence relief for Capital Gains Tax (CGT). The proposals, which potentially reduce the amount of the exempt gain on an individual’s only or main home where the property has been let for part of the ownership period, appear to be a further attempt to discourage landlords through increased taxation.
While not specific to real estate, the changes to Entrepreneurs’ Relief are important for property developers and other property trades. In particular, the extension from 12 months to 24 months of the minimum period throughout which the qualifying conditions for relief must be met could increase the tax charge on the disposal of trading companies if the development is completed in less than two years.
For investors, the changes to capital allowances could be significant. On the one hand, the temporary increase in the Annual Investment Allowance to £1m provides a helpful acceleration of tax relief on qualifying capital expenditure; on the other, the reduction in the rate of special rate pool allowances from 8% to 6% defers relief over the longer term. It was also announced that the availability of environmental enhanced capital allowances will be withdrawn. Another potentially costly change is the extension of the corporation tax loss restriction to capital losses. Those corporate investors expecting to offset property gains over £5m with brought forward capital losses could find their ability to do so is limited. In addition, the Budget included confirmation that the payment of CGT on residential property will be accelerated for individual investors.
One surprise announcement was the new structures and buildings allowance, which aims to stimulate investment in structures and buildings that are intended for commercial activity. Tax relief will be available at 2% per year over 50 years for the costs of physically constructing new structures and buildings that are used, broadly, for a trade, profession or qualifying business (including a property business). This is a welcome change to reduce the overall cost of capital expenditure that has not attracted relief since the phasing out of Industrial Building Allowances.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.