March 3rd, 2021 / Insight posted in Articles

Budget 2021: Real Estate and Construction Tax

In the March 2021 Budget, the government has followed the unprecedented approach adopted at the March 2020 budget in continuing massive central support for the UK economy. The level of borrowing and spending reported on and announced are truly ‘generational’ in their scale. The UK will be dealing with the aftermath of Coronavirus for decades to come.

Against this backdrop, there are however a number of measures and announcements which will have direct and more immediate implications for the real estate and construction sector. Our wider commentary available here provides a run-down on all the measures but this short summary covers matters directly relevant to the sector:

 

Capital gains tax

The much-trailed raise in CGT has not materialised nor are there any new indications that this is in the pipeline.

Moore Kingston Smith comment

Although the recent clamp-down on single use companies and liquidations in the real estate sector has lessened any potential impact, the lack of any announcements will still be welcome news for investors whose returns continue to be as capital.

 

Coronavirus support

Furlough continues until the end of September, business rates relief continues and, as CBILS ends, a new form of government-backed loan comes in.

Moore Kingston Smith comment

Owners and occupiers of real estate alike will be pleased with the extension of these measures and that there will not be a period of no support between existing relief measures ending and the economy hopefully really getting going again. For landlords in the hospitality sector, the extension of the 5% rate on hospitality to 30 September 2021 should also be welcome and potentially make rent discussions slightly easier.

 

SDLT holiday extension

The exclusion of transactions below £500,000 from SDLT (due to end 31 March 2021) has been extended to 30 June. Thereafter the rates will be tapered back to normal by 30 September 2021. It should be noted that while SDLT is being reduced for domestic buyers, 1 April would see the introduction of a 2% surcharge on rates for overseas buyers of UK residential property.

Moore Kingston Smith comment

The extension of the SDLT holiday must be welcomed, as it gives the market a chance to fully utilise this measure as the unlocking of society gathers pace. The announcement was much trailed, but many will be disappointed that the Chancellor did not take more sweeping measures on what is considered an unfair and outdated tax. Maybe this is a subject for the November fiscal announcement?

 

Corporation tax changes

The rate of corporation tax is increasing to 25% from April 2023 (with lower rates for companies with smaller profits). Balanced against this is a new limited time ‘super deduction’ of 130% of amounts spent on plant and machinery and the ability to carry losses back further and claim tax refunds.

Moore Kingston Smith comment

The fiscal impact of the changes to corporation tax are likely to result in net inflows to the exchequer, but still leave the UK with one of the lowest rates of corporate income tax of any G20 nation. For capital-intensive businesses in construction for example, the new super deduction is likely to be welcome news. Given the different introduction dates, lifespans and interactions of the new measures on corporation tax we are likely to see some fairly complex calculations as companies look to maximise their tax position.

 

Freeports

The locations for these, in England at least, have been announced: East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames. Freeports are billed as creating and stimulating economic growth and one of the ways they are set to achieve this is with tax incentives, many focusing on real estate. There will be no SDLT, no business rates and much enhanced tax relief for spend on plant and buildings. Planning requirements are also likely to be relaxed. Away from real estate, there will be reductions in national insurance and probably lower/zero tariffs on goods. The tax reliefs initially apply until September 2026, but will mostly likely be extended if successful.

Moore Kingston Smith comment

If the concept works, it could generate significant economic growth in the specified areas and for those associated with the built environment therein. It is, however, a very fine balancing act between stimulating growth and creating what effectively amount to tax havens within the UK. Our international trading partners will be watching matters closely. If there is too much success in the concept, we must expect that future trade agreements will have specific, and potentially not beneficial, rules for trade with these zones.

For more information on Budget 2021, or if you would like to discuss any other topics affecting real estate and construction, please get in touch with our team, including our VAT specialists.