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Emerging from uncertain times 

The future of property and construction

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Commentary from our leading property and construction specialists.

The industry has been facing sector-specific challenges due to COVID-19. Landlords have had to adjust to government legislation which showed understandable sympathy and support for tenants, while the lockdown has dramatically impacted housing transactions and retail visitors, as well as placing huge question marks over the future of the office – particularly in the UK’s major cities.

  • Stamp Duty Land Tax (SDLT):  The recent temporary extension of the SDLT threshold is welcomed.  However, we would call for significant rate reductions. SDLT limits people’s desire or ability to move home, which reduces transactions. Cuts in SDLT may in fact raise more money for HMRC. Crowe’s 2019 Real Estate Outlook report highlighted that most property owners feel the government’s taxation policy is bad for the industry with SDLT being the biggest tax barrier to growth. Further incentives around SDLT rates and thresholds would be welcomed regardless of the economic backdrop, but would represent a particularly well-timed boost for the UK economy in the coming months
  • Planning reforms: greater government investment in planning departments is needed, including investment in technology to ensure the planning process can operate efficiently. The UK economy will need a boost from construction activity, particularly around infrastructure and housing. Permitted Development Rights would allow developments to be pushed ahead especially around retail to residential conversions.
  • Corporation tax simplification: The UK system has become increasingly complex in recent years for property owners and developers. Corporation tax changes for non-resident entities holding UK property brought further complexity with corporate interest restrictions and any-hybrid rules to contend with. Simplification would bring more certainty and reassure prospective investors.

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Paul Fay Paul Fay, Corporate Tax Partner at Crowe, said:

“Narrowing the SDLT base and lowering rates is something the industry has long been calling for. While the recent temporary extension of the SDLT threshold is welcomed, making this permanent and further lowering of rates would provide a much-needed shot in the arm for the UK housing market and economy.

"While the government loan schemes – from furlough through to VAT deferral and Time to Pay – have been useful in helping short-term cashflows, landlords now need funders and the government to be flexible and supportive as some tenants unfortunately struggle to survive.

“The government must continue to think about specific policy objectives. To date, it is questionable as to whether legislative changes aimed at increasing housing supply have been effective in getting prospective homeowners onto the property ladder, or whether they have simply driven up rental costs.”

Thoughts from Crowe UK

"The government will temporarily increase the nil rate band of residential SDLT in England and Northern Ireland from £125,000 to £500,000. This will apply from 8 July 2020 until 31 March 2021 and cut the tax burden for everyone who would have paid SDLT – impact-wise this will mean that nearly nine out of 10 people getting on or moving up the property ladder will pay no SDLT at all. However the high levels of SDLT for residential purchases over £500,000 and certainly over £1,000,000 as well as the numerous different rates for SDLT, will continue to limit transactions and liquidity in the market. Further cuts at levels over £500,000 may even lead to a higher tax take for HMRC.

“Elsewhere, landlords have had to adjust to legislation around non-payment of rent which they feel has been slanted in tenants’ favour. While landlords have taken a consensual and supportive approach to tenant difficulties, the specific legislation protecting tenants has hindered negotiations against landlords, which will often be councils and pension funds.

“The immediate need in the retail and office space is for landlords to assist tenants as activity returns, to ensure those environments are safe. In the medium term, changes to the High Street have been accelerated by the recent economic turbulence. The retail and leisure sector continues to adapt to social distancing and how this tallies with the move to balance experiential retail and reduced footfall with greater demand for e-commerce provision.

“The government is introducing new legislation in summer 2020 to make it easier to build better homes in the places people want to live. New regulations will make it easier to convert buildings for different uses, including housing, without the need to go through laborious planning permission processes. This will provide a welcome boost and employment to the construction industry and ensuring our current property stock is appropriate to the needs of the specific local population.”

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Caroline Fleet
Caroline Fleet
Head of Real Estate