March 11th, 2020 / Insight posted in Articles

Budget 2020: Real Estate and Construction Tax

The current Coronavirus crisis was the main focus of the immediate measures in the March 2020 Budget. After that, the majority of the measures announced largely focused on manifesto pledges to spend on growth, infrastructure and the regions. The Budget was a bit of a mixed bag for those in the Real Estate & Construction sector – the significant commitments made to housing and infrastructure spend should be good news for those in construction and development, but the detail is yet to be shared. On a more immediate level, the much trailed changes to entrepreneurs’ relief (a reduction in the limit from £10 million to £1 million, which is described in the Private Client section), effective from today, will impact property developers not already excluded from the relief by anti-phoenixing rules. Our analysis of the specific measure announced today and their implications for the sector is given below.

 

Business rates relief

The previously announced 50% retail discount for small business will be extended to 100% for one year only (2020/21), as a direct response to the anticipated economic impact of the Coronavirus. The relief will also be extended from the retail sector to leisure and hospitality businesses.

Moore Kingston Smith comment
As a result of the measures announced, just under half of qualifying premises in England will pay no business rates in 2020/21. This will no doubt be a welcome boost for smaller retailers and property reliant business already suffering from changing consumer habits, and now further impacted by the Coronavirus.

 

Structures and buildings allowance (SBA)

The recently introduced SBA provides straight line tax relief for expenditure – which would not otherwise qualify for capital allowances – incurred on the construction of new UK commercial buildings. The relief has been enhanced from a 2% straight line deduction to 3%.

Moore Kingston Smith comment
The increase will be welcome for those building and owning new build commercial buildings such as offices, warehouses, etc. It plays to government plans to incentivise those contributing to the building blocks of the UK economy by making increased relief available to those providing the built environment required to increase output. The increase is forecast to cost just over £1 billion in additional tax in the period to 2025.

 

Construction industry domestic reverse charge

The Budget confirmed that the VAT changes planned in the construction industry sector will, as trailed, be implemented from October 2020. The changes focus on where VAT needs to be accounted for in the chain of contractors, subcontractors and end users in a construction project.

Moore Kingston Smith comment
The changes proposed are not revenue raising for the government, but rather seek to address the perceived opportunity for VAT fraud in construction projects involving multiple layers and entities. Action will be required prior to October 2020 to address accounting system changes, counterparty education and, most importantly, impacts on cash flow.

 

SDLT for non-residents

From April 2021, a 2% surcharge, on top of existing rates, will be applied to all non-residents purchasing residential property in England and Northern Ireland.

Moore Kingston Smith comment
This increase has been trailed and consulted on in the past, although previously it was going to be 1% rather than 2%. It seems unlikely that this measure will raise any significant funds (£140 million is currently predicted to be received over the next five years), nor that it will dissuade material overseas investment, but it does play to the political objective of promoting home ownership. It is therefore not surprising that the previous consultation has been followed through on.