Spring Budget 2020 - real estate update
Although there were no surprises, Chancellor Rishi Sunak’s first Budget contained much of interest for the real estate sector. We summarise the main points below.
2% extra SDLT for non-residents
In the run-up to the Budget there had been much speculation that there might be a new 1% surcharge, on top of the ordinary rates introduced for non-residents purchasing residential property. In the event this charge has been doubled to 2%, but the introduction of the charge has been delayed until 1 April 2021.
While we await further details of how this will apply, it seems likely that this charge will not be subject to any value threshold. This means that the rates payable by non-residents who own other property and are not replacing a main residence will range from 5% to 17%, making UK property more expensive for overseas buyers. It may even drive overseas owners back to using UK corporate structures to hold UK land.
Purchasers who are looking to move to the UK and wish to buy a home to move into on arrival will also be subject to the charge unless they can show that they are tax-resident in the UK at the time of purchase. This involves consideration of many different factors and may be difficult for conveyancing lawyers to determine.
Housing co-operatives: some good news
There will be a new relief for qualifying housing co-operatives from the usual 15% flat rates of SDLT applying to companies buying dwellings for over £500,000, and from the Annual Tax on Enveloped Dwellings (ATED) that would also otherwise apply.
The SDLT relief in England and Northern Ireland will take effect from Autumn Budget 2020 and the UK-wide ATED relief from 1 April 2021, with a refund available for 2020-21.
Other developments
Other tax developments in the Budget relevant to the real estate sector include:
The rate of corporation tax will remain at 19%, with no sign of a reduction to 17% in the near future.
The capital allowance for investment in structures and buildings, introduced in October 2018, will be increased from 2% to 3% with effect from 1 April 2020. It provides an immediate deduction in respect of construction costs on structures and buildings for commercial use.
In a move of major interest to the retail sector, business rates have been slashed for this year for smaller businesses in the retail, hospitality and leisure sectors. Businesses in these sectors occupying properties with rateable values of £51,000 or less will pay no business rates, while businesses which already qualify for exemption from business rates will receive a £3,000 cash grant.
The long-promised fundamental review of the rates system will be carried out this year, reporting in the autumn.
Further support in light of the covid-19 virus is to be made available to businesses which are facing difficulty paying their taxes through the Time to Pay facility. This allows business facing difficulties to contact HMRC and arrange a deferral of their tax payments. It is essential in using this service that contact is made prior to missing a tax payment.
A review is to be carried out on the UK funds regime during 2020, to include whether there are targeted and merited tax changes that could help to make the UK a more attractive location for companies used by funds to hold assets. The VAT treatment of fund management fees will also be considered.
Finally, in what may be a worrying development, rules are to be introduced to require large businesses to notify HMRC of any tax treatment they apply which “HMRC is likely to challenge”. The Government is to consult on this measure but it is seen as revenue-raising. It amplifies the picture of the UK as business-friendly provided business stays clearly within the rules; any activity at the margins of what HMRC might consider acceptable is to be shut down hard.
For further information please contact Linda Adelson or Charles Goddard
“This [the non-resident SDLT surcharge] will help to control house price inflation and to support UK residents to get onto and move up the housing ladder”
About the author
Charles Goddard is a tax solicitor with over 20 years' experience of advising on the corporate tax aspects of a wide range of corporate and financial transactions. His clients range from multinational blue-chip institutions to private individuals.
Find out more about Charles and our corporate tax advice and consultancy services for business.
About the author
Linda Adelson is Rosetta Tax’s resident VAT expert, who has specialised in all aspects of VAT and indirect tax for over 25 years. One of just a handful of VAT solicitors in the UK, Linda is ranked by the Legal 500 as a Leading Individual for the depth of expertise in her field.
Find out more about Linda and our VAT advice and consultancy services for businesses.