With the Budget announcements on Wednesday understandably being dominated by Coronavirus, what were the key measures which may impact on the property sector?
The business rates retail discount will be increased to 100% for one year and extended to the leisure and hospitality sectors where there is a rateable value of less than £51,000. This will be a great help to smaller businesses in the relevant sectors (including restaurants, caravan parks, museums and gyms) but others such as small manufacturers will not get to benefit. Pubs will also benefit from a discount of £5,000.
There is a promise to review business rates in the longer term with a report in the Autumn. This will do little to allay the fears of larger businesses where business rates is a significant overhead, particularly in the current economic climate.
STAMP DUTY LAND TAX (SDLT) FOR NON-RESIDENTS
The Budget clarified the intention to introduce a 2% SDLT surcharge for non-residents purchasing residential property in England and Northern Ireland from 1 April 2021. The surcharge will apply at a rate of 2% above the residential rates (including the higher rates for additional dwellings and companies (3%), the 15% rate and the first-time buyers’ rates).
The rules for who is likely to be treated as a non-resident for SDLT are expected to be different to the statutory residence test for income tax and capital gains tax purposes. We will provide more guidance once it has been issued. What we do know, is that transitional rules may apply where contracts are exchanged before 11 March 2020, but complete or are substantially performed after 1 April 2021.
ANNUAL TAX ON ENVELOPED DWELLINGS
Housing cooperatives may benefit from the new reliefs announced in the Budget from the annual tax on enveloped dwellings (ATED) and the 15% SDLT surcharge.
Also the ATED charges have been clarified for companies owning residential property valued at over £500,000. The 2020/21 charges start at £3,700 for properties up to £1m, but rise steeply. For example, a property valued at £2.1m will incur a charge of £25,200 for 2020/21. ATED returns and payment are due by 30 April 2020 for any 2020/21 returns.
As widely anticipated, entrepreneurs’ relief which provides for a lower rate of capital gains tax (10%) to be paid when disposing of all or part of a business or shares in a trading business, has been limited. Whereas previously it was possible for £10m of lifetime gains to be subject to 10% tax, this has now been reduced back down to the original £1m level for disposals from 11 March 2020.
There are also anti-forestalling rules and implications for those who exchanged shares with another company after 5 April 2019. The changes will only impact on owners of trading businesses and shares and are not applicable to investment businesses. Capital gains will otherwise be due at 20% for higher rate taxpayers, unless residential property is being disposed of when the 28% rate applies.
STRUCTURES AND BUILDINGS ALLOWANCES
Some good news for those investing in commercial property (either as trading or letting property) is that expenditure on construction, renovation or conversion will qualify for 3% tax relief (instead of the current 2% rate) from April 2020.
This is positive news for bringing forward tax relief, particularly at a time when 100% enhanced capital allowances on energy and water efficient plant cease at the end of the 2019/20 tax year.The current £1m annual investment allowance is only temporary until 31 December 2020 when it defaults back to £200,000. Planning of timing of capital expenditure may be key to ensure optimum tax relief.
NON-UK RESDIENT COMPANIES WITH UK PROPERTY INCOME
Non-UK resident companies which rent property are currently subject to income tax on their profits. From 6 April 2020 such companies will be brought within the scope of corporation tax and will be required to file corporation tax returns. The UK corporation tax rate will now remain at 19%.
CAPITAL LOSSES IN COMPANIES
Property investment companies may have sold some properties where capital losses have been incurred. For accounting periods ending on or after 1 April 2020 companies making chargeable gains will only be able to offset up to 50% of those gains using carried forward (allowable) capital losses. Careful planning on timing of disposals should be made to unsure capital losses are not left unused.
INVESTMENT IN HOUSING, ROADS, INFRASTRUCTURE & COASTAL DEFENCES
The Budget focused heavily on spending and investment with a myriad of measures announced and re-announced. The main measures which impact on the South West include strategic road schemes including the A303 and A417 as well as investment for Plymouth, potholes in general (given the current state of the roads the current funding or repairs certainly do not feel effective!), coastal defences and improvements to the M5 at Cheltenham to unlock nearly 9,000 homes. A summary of the key announcements impacting in the South West can be seen at:
The Budget was dominated by measures to mitigate the worst effects of Covid-19. For those property businesses who may be struggling with cashflow, particularly with tenants struggling to pay rent or supply chain issues, measures include:
- Statutory sick pay (SSP) being available from day 1 instead of day 4. This will also cover those who are advised to self-isolate.
- Small and medium employers (fewer than 250 employees) will also be able to reclaim SSP paid for sickness absence due to Covid-19.
For any businesses needing help and support with cashflow, a new temporary Coronavirus interruption loan scheme will be delivered by the British Business Bank. As there may be difficulties in meeting payroll, VAT, rent and overheads over the coming weeks, any businesses and self-employed people can arrange to receive support through HMRC’s Time to Pay service. It is far better to contact HMRC in advance and arrange a payment timetable. There is a special HMRC dedicated helpline on 0800 0159 559.