From a Property business sector perspective, the 2021 Budget provided some short term reliefs such as extending the SDLT and business rates holidays, which will help to open up the residential market and support underlying tenants as their businesses get back on their feet.
There was also some medium term investments with measures such as the ‘super deduction’ for capital expenditure, and the launch of the 95% mortgage guarantee scheme to help people buy their homes. However, the 2% non-resident SDLT surcharge is still set to apply from April 2021, corporation tax rates are due to increase and HMRC is looking to consult to introduce a further property development tax.
SDLT Residential Holiday
The nil band for purchases of residential property will continue to be £500,000 for the period to 30 June 2021. From 1 July 2021, the band will reduce to £250,000 and then return to the standard amount of £125,000 from 1 October 2021. This should help alleviate some of the pressures to complete before 31 March 2021.
SDLT Non-Resident Surcharge
This 2% surcharge is set to apply to all non-resident purchases from 1 April 2021. The rules will create new definitions of ‘non-resident’, adding additional complexity and further rates, into an already far too complicated tax.
Increasing rates of corporation tax
The nature of a property development trade in particular means that profits are often far more ‘lumpy’ than other sectors. Depending where projects are on their development cycle and when the developments are sold will dictate the profits are subject to tax at 19% or 25% tax. Going forward, business will also need to consider providing for their deferred tax at the higher rate, affecting their balance sheet provisions.
For property development trades who have had to recognise losses in the recent period, there is increased flexibility to carry back and generate a refund.
Enhanced capital allowances
For those businesses looking to incur capital expenditure, a ‘super deduction’ has been introduced for the next two years. This is effectively a first year allowance for ‘Main Rate’ plant and machinery items of 130% (previously 18%) and ‘Special Rate’ items of 50% (previously 6%).
As already announced, the temporary £1,000,000 limit for the AIA will be extended by one year, covering 1 January 2021 to 31 December 2021. The annual investment allowance gives an immediate tax deduction of 100% for qualifying expenditure up to £1m.
Property Development tax
In February, the Housing Secretary today announced plans to introduce developer levy for those seeking to develop certain high-rise buildings in England. In addition, he announced HMRC will in due course consult on the introduction of a new tax for the UK residential property development sector. The intention is that this new tax will raise at least £2 billion over a decade to help pay for cladding remediation costs. At this stage, no further details regarding this proposal have been provided.
Business rate Holiday
There was further relief for business property occupiers as the Chancellor confirmed that the current 100% business rates holiday will be extended from the end of March until the end of June 2021. After that date, the rates will further be discounted by two-thirds for the rest of the year. This news will be welcome relief, particularly by the retail, hospitality and leisure sector who are significant property occupiers and are still badly affected by the pandemic. However, the need to complete the fundamental review of business rates is more pressing than ever.
Overall the Budget provided some further breathing space for the Property sector to find its feet as we emerge from the Pandemic. Although the continued commitment to introduce the 2% SDLT surcharge is disappointing. Like many other sectors, there are still many fundamental questions to address, such as how to open up of the planning system and improve sustainability. Looking at the long term, it is clear that overall the tax take for Property is set to increase.
If you would like to discuss anything further or how these changes might affect you, please contact your usual Crowe advisor.
Multiple Dwellings Relief – Have you got a separate dwelling?
Non-resident Companies paying Corporate Tax