The UK's high streets have been under pressure for some time now, and the challenges posed by COVID-19 seemingly only exacerbate its woes. So, it is no surprise that changes to business rates, the council tax equivalent for commercial property, featured prominently in the Chancellor's Budget Speech.
The business rates retail discount, which had already been increased to 50% for properties with a rateable value below £51k, will be increased to 100% and expanded to include hospitality and leisure businesses (for 2020/21 only). In addition, for pubs in England with a rateable value below £100k, the current business rates discount of £1k will be increased to £5k.
These measures will also be welcome news for landlords, many of whom have had to contend with tenant insolvencies and CVAs in recent years.
Finally, it is a great relief to hear that the government will be bringing forward legislation to provide 100% business rates relief for standalone public lavatories in England from April 2020.
As expected, the chancellor announced a huge spending spree on infrastructure projects. These amount to over £600bn over the next 5 years and include: £27bn for new roads, a £2.5bn pothole fund, £5bn to extend fast broadband to rural areas, and £500m to extend the 5G to 95% of the country. Specific commitments mentioned were HS2, the Manchester to Leeds high speed rail link, a new Cambridge South rail station and fixing the A303. There was also a concerted effort to show infrastructure spending outside London with £4.2bn extra in transport funds for the 'metro mayors', and £1.2bn extra in aggregate for Scotland, Wales and Northern Ireland. Good news here, not only for the real estate sector.
Amongst a number of proposals relating to investment in social housing, the government has announced an additional £9.5 billion for the Affordable Homes Programme (the main funding pot for affordable housing). This brings the total allocation of grant funding to build affordable homes across England for 2021-22 to £12.2 billion.
The Affordable Homes Programme is, in essence, a funding partnership between the government and private investors, where the government puts money towards building a certain amount of homes for Help to Buy and Shared Ownership, homes for Rent to Buy and homes for supported and older people's rented accommodation. It should open up new opportunities for the sector and help towards the provision of new housing.
Helpfully, the Chancellor has announced a new 'Building Safety Fund', worth £1 billion in 2020 - 2021, aimed at removing and replacing unsafe combustible cladding from all private and social sector residential buildings which reach a height of 18 meters and above. The government had already pledged a total of £600 million (in 2018 and 2019) to fund the removal of Aluminium Composite Material, known as ACM, which is considered a particularly dangerous form of cladding following the Grenfell Tower fire in 2017. This new fund dedicates an additional £1 billion to target unsafe non-ACM cladding systems, such as high-pressure laminate and wood cladding.
The building owner will generally have responsibility for the safety of the building. In blocks of flats, this will generally be the owner or their managers or agents. In the private sector, grants will be available to leasehold owners. While the funding is targeted at those who cannot afford the remediation costs, it is not yet clear exactly how these grants will be allocated, to whom and what proportion of the removal and replacement costs they are intended to cover. Building owners who have already committed to pay for the removal of unsafe non-ACM cladding systems will not be reimbursed by this new fund.
It is also a condition of receiving the funding that building owners must pursue appropriate action, including warranty claims, against those responsible for putting the unsafe cladding on the buildings. Any money recouped will then need to be repaid to the government. If owners do not take appropriate action, the government will use powers at their disposal to support or enforce.
The industry will be disappointed that many of the real estate specific climate change tax matters that they had been lobbying on did not materialise. For detail on the climate change measures that were announced, see this briefing.
Reduction in the extent of Entrepreneurs Relief
As expected something gave here, but not the wholescale abolition that had been anticipated in some parts and not it appears at the moment like a targeted change. Instead the lifetime allowance has been reduced from £10m to £1m. See this briefing for further information.
Housing co-operatives: Annual Tax on Enveloped Dwellings (ATED) and Stamp Duty Land Tax (SDLT)
To make the taxation of housing co-operatives fairer, the government will introduce a relief for qualifying housing co-operatives from the ATED and the 15% flat rates of SDLT on purchases of dwellings over £500,000. 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.
Tackling Construction Industry Scheme (CIS) abuse. The CIS is one of those areas the government sees as a hotbed of mischief. Accordingly, the government will legislate to prevent non-compliant businesses from using the CIS to claim tax refunds to which they are not entitled. The government is also publishing a consultation which introduces options on how to promote supply chain due diligence.
Further anti-avoidance measures have been announced for more on which see Budget 2020.
Capital Allowances. Extending Enhanced Capital Allowances in Enterprise Zones (EZs)
Secondary legislation will be introduced to ensure that 100 per cent First Year Allowances (FYA) remain available for expenditure incurred in relation to all designated areas, whenever designated, until at least 31 March 2021. First Year Allowances are available to companies investing in qualifying plant and machinery for use in designated areas within EZs. These changes will have effect from 1 April 2020. In practical terms these changes are likely to impact on relatively few.
It seems that we will have to wait for the Finance Bill to see if the the wider capital allowances changes sought eg for exemption from the Construction industry scheme in group relationship and on landlord's contributions to tenants to carry out tenant's work will be brought in.
Insolvency – HMRC's ranking as creditor
With effect from 1 December 2020, HMRC will be moved up the creditor hierarchy for distribution of assets in an insolvency, becoming a secondary preferential creditor rather than an unsecured creditor. The measure will only apply in respect of taxes collected and held by business on behalf of other taxpayers, including VAT, PAYE income tax, employee NICs and construction industry scheme deductions.
The policy rationale for the change, which was announced some time ago at Budget 2018, is to ensure that more of those taxes "paid in good faith … go to fund public services as intended", rather than going to other creditors.
Perhaps not unexpectedly, despite the prior discussions, there was no measure on this generally.