Real estate and construction – practical tax complexities and policy developments

Our real estate and construction team recently delivered a webinar with the Institute of Chartered Accountants in England and Wales (ICAEW) on 28 November 2023. During the webinar we explored the various tax consequences which can arise in connection with three hypothetical property transactions, before considering to what extent recent tax policy developments alleviate long-term uncertainty in the real estate and construction sector.

To summarise, in very brief terms, both the webinar and our follow-up article on the ICAEW website examined the following:

1. The VAT and capital allowance complexities to consider when converting a non-residential property into private student accommodation units.
2. The corporation tax charges, and effect of the quarterly instalment payments (QIPs) regime, to consider when a valuable trading stock property is either sold to a third-party, transferred intra-group, or recognised as a fixed asset.
3. The nuances around capital allowances, structures and buildings allowance, and investment zones worth considering when acquiring and developing an investment property.

After exploring these practical issues, we briefly examined how recent tax policy has done little to alleviate complexity in the real estate and construction sector. The announcement that full expensing and the 50% first-year allowance is to be made permanent will be welcomed, as it adds certainty for many businesses. However, long-term uncertainty remains given the temporary nature of the investment zones programme and business rates reliefs. Alongside this uncertainty, the record-high tax burden faced by businesses, driven by fiscal drag, means that it remains a difficult fiscal environment. It also remains to be seen whether the raft of non-tax infrastructure and property measures announced in the Autumn Statement will offer substantive benefits to businesses.

Most clients will be making long-term investments and planning expenditure several years into the future, meaning that long-term tax certainty is particularly valued in the sector. Therefore, a current or future government may wish to consider more fundamental changes to certain areas of real estate and construction tax. There is, in our view, some sense in creating long-term certainty in this important economic sector, particularly as decarbonisation of the UK economy gains momentum and businesses begin adapting to the challenges this will bring.

Throughout our webinar and article, the core focus has been to highlight the complex tax consequences which can arise in connection with fairly straightforward property transactions. However, detailed analysis will always be required to accurately assess these tax consequences and it is therefore important to seek specialist tax advice at an early stage. In this connection, please do not hesitate to contact us should you want to explore how Moore Kingston Smith can support your property business in navigating the UK tax system.

Members and students of the ICAEW can read our full article summarising the webinar and further discussing the recent tax policy announcements from the Autumn Statement on 22 November 2023.