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Budget 2020: Real Estate

Budget 2020: Real Estate


Set out below is a summary of the key changes in the Budget as they impact on the real estate sector.  Generally, welcome news, with some kick-backs and disappointments.


A larger capital spending programme than anticipated and helpful new measures to tackle Coronavirus, including for those small and medium businesses and individuals that need support.

Not many substantive tax changes that had not already been announced, however, though not all of the detail of tax changes are announced in the Budget itself, so watch out for the Finance Bill on 19 March.

What's new

Business rates 

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.

Affordable Housing

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.

Climate change

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.

Expensive housing  

Perhaps not unexpectedly, despite the prior discussions, there was no measure on this generally.

Confirmation of major matters already announced

Retention of the current 19% corporation tax rate, for both 2020 and for 2021

This had been expected (at least for 2020) and is a reversal of the previously announced reduction to 17% from this year. Notably the 19% rate will also affect non-resident corporate landlords (NRCLs), who will come into the UK corporation tax net from 6 April.  While the headline rate itself is only marginally different to the current 20% income tax rate, potentially, for many NRCLs (eg those with debt funding) the change of regime could have substantially wider implications, meaning for some a higher effective rate of tax than at present. See this briefing for further detail.

Increase in Structures and Buildings Allowance (SBAs)

This has been increased on certain commercial property from 2% to 3% per annum (from 1 April 2020 for corporation tax and 6 April 2020 for income tax). Helpfully, the higher rate will effectively accelerate the period over which the relief can be claimed potentially from 50 years to 33 and one third years.   There will also be some other amendments to the operation of the regime.

Notably, this relief does not apply to residential property, serviced apartments or care homes, which, given the need for more expenditure in this area, is a bit of a shame. 

Where applicable, these allowances may benefit NCRLs looking to offset potentially increased tax costs following their move to the corporation tax regime. The allowances are, however, ultimately only a cash flow benefit as, if the property is later sold, the allowances claimed are added to the disposal consideration.

2% SDLT surcharge on purchases of residential property by non-residents 

This measure means a new effective top rate of 17% for purchases of dwellings by non-UK residents. Again, this had already been announced in substance.  However, final rate of the new surcharge at 2% is less than the 3% rate that had been announced in the general election process and more than the initial 1% rate, so a compromise. We also now have a date for implementation  - 1 April 2021 - a surprisingly long way out. For contracts exchanged before 11 March 2020 but completed or substantially performed after 1 April 2021, transitional rules may apply subject to conditions. The government will shortly publish a summary of responses to the consultation. 

We will need to await the new legislation in the Finance Bill to see if there will be any exemptions for those in the BtR sector or whether, in practice, institutional and other investors acquiring portfolios will need to rely on commercial rates to avoid the new more penal charge going forward.  It could have an impact on decisions as to whether certain projects proceed.

The surcharge is intended to help to control house price inflation and to support UK residents to get onto and move up the housing ladder. The money raised from the surcharge will be used to help address rough sleeping. [click through link to be supplied - [See Appendix for more detail]

Non-resident Corporate Landlords (NRCLs)

(See also retention of the current 19% corporation tax rate above). The Budget has announced various technical changes to the transitional rules to facilitate entry to the regime in the context of loan relationships and derivative contracts and to clarify the operation of the duty to notify rules.   The changes are expected to be revenue neutral.

Already on the statute book, it seems that the implications of this apparently innocuous change of regime are widely underestimated. As indicated above, the move does not just mean a change from income tax at 20% to corporation tax at 19%. The effect of the change will be, potentially, to bring NRCLs into a host of anti-avoidance and BEPS driven initiatives (e.g. through new restrictions on tax deductions for interest (CIR) and for certain brought forward losses and on hybrid structures and arrangements), that could impact on anticipated returns and commercial positions, with implications for the viability of existing structures for some.

Importantly, the Non-Resident Landlord Scheme will continue to apply so that appropriate withholding tax needs to be deducted, unless a gross clearance is in place.  To take account of how this works, given that NRCLs will become subject to the CIR, new regulations have been laid with a potential election for an alternative method of calculation for agents. See this briefing for further detail.

Restriction on brought forward capital losses from 1 April 2020

As expected, from 1 April 2020, use of brought forward capital losses will restricted to 50% of capital gains per annum, subject to an annual allowable threshold of £5m of income or gains across a group (ie the same as that which currently exists for corporate income losses (CILR).

This new restriction will also apply to non-resident companies that came within the scope of UK taxation of gains from April 2019 and to those non-resident corporate landlords that will come within corporation tax generally from April this year.

The real estate industry, with its heavy capital expenditure will be disappointed that a separate £5m deduction allowance will not be permitted for the purposes of capital gains, potentially giving a distorted tax cost for some compared to other industries.

Potentially, this could impact on timing of transactions.  Anti-forestalling measures have, however, been in force since 29 October 2018 when the measure was first announced.

Changes to "IR 35"

This change was confirmed and is relevant to the many businesses in the sector who use consultants and other providers through personal service companies (PSCs). See this briefing for further information.

Tax consultations relevant to the real estate sector


The government will publish a consultation on the UK's "hybrids" anti-avoidance regime. This regime, within the corporation tax rules, is targeted at arrangements that exploit differences in tax treatment between two jurisdictions, broadly, through use of hybrid entities or instruments. Although the Budget does not set out the scope of the consultation, it does indicate that it will focus on areas where taxpayers and their advisers are commonly finding the regime's restrictions to be too wide-ranging.  This is good news.  It could be particularly be relevant also to NRCLs who will become subject to the UK rules from April for the first time. For more on this announcement, please click here

Consultation on the tax impact of the withdrawal of the London Interbank Offered Rate (LIBOR)

Many real estate transactions use leverage to fund the purchase.  The withdrawal could have economic implications for lenders and borrowers and on hedging, as appropriate.  The government will consult to ensure that where tax legislation makes reference to LIBOR it continues to operate effectively. The consultation will also enable the government to ensure it is aware of all of the significant tax issues that arise from the reform of LIBOR and other benchmark rates.

Review of the UK funds regime

On top of the ongoing discussions with industry on a potential new UK fund for real estate and certain other assets and business models, the government has announced that it will undertake a review of the UK’s funds regime during 2020. This will cover direct and indirect tax as well as relevant areas of regulation, with a view to considering the case for policy changes. The review will include a consultation on whether changes to the tax treatment of companies used by funds to hold assets could make the UK a more attractive location for these companies. It will also consider the VAT treatment of fund management fees and other aspects of the UK’s funds regime.

VAT and fund management fees

Following on from publication of regulations in relation to an extension of the UK VAT exemption on fund management fees with effect from 1 April this year, the Budget has announced of a further consultation on the topic.  Fiscale Eenheid X, an EU case, deemed supplies of fund management to certain collective investment schemes (including those holding real estate) to be VAT exempt. While, to date, HMRC have allowed certain listed funds, which met the conditions of the case to decide voluntarily whether to apply exemption, regulations have recently been introduced to make the exemption mandatory from 1 April 2020. Those potentially affected e.g. fund managers and REITs will be considering the issue with care.   These new UK rules are not as clear or as consistent as might have been expected after this time lag, so it is perhaps not unexpected that the government have announced in the Budget another review.

Gentle reminder of some other relevant matters coming up
  • NRCGT: election deadline of 5 April 2020 for pre-April 2019 offshore income transparent funds, such as JPUTs and FCPs, that wish to elect for CGT treatment as partnerships. Both transparency and exemption elections for collective investment vehicles and qualifying companies (where appropriate) can now be made online.

  • Reduction in period for payment of CGT on residential property for UK individuals and trusts to 30 days. In line with the introduction of non-resident CGT (NRCGT), this markedly shortens the filing and tax payment date for gains on UK residential property to 30 days from the date of completion. The current position potentially gives rise to a 21 month delay in that filling and tax payment is not required until 31 January following the end of the relevant tax year of the disposal.  This will be a big cash flow disadvantage for many and interest and penalties will arise for non-compliance.  Helpfully, there are certain exemptions, such as where the gain is covered by PRR or prior capital losses, but these should be considered on the facts.  The new filing and payment date will not apply to UK companies.

  • Final Period Exemption from Private Residence Relief (PRR) to be reduced and PRR lettings relief to be restricted. Again, this measure has already been announced, but it is not widely known.  PRR is available as a relief from CGT on disposal of a property which has been occupied by an individual as their only or main residence. Provided such property was at some point occupied as the individual's main residence, the current PRR rules also provide for a "final period exemption", which enables the individual to treat their final 18 months of owning a property (regardless of whether the individual was living there during this time) as a period in which it was their main residence. This relief is to assist those who move home but are unable to sell their old property immediately. In the Autumn Budget 2018, it was announced that the final period exemption would be cut from 18 months to 9 months, with effect from 6 April 2020. Notably the period used to be 3 years and many are not aware of the current 18 month reduction – never mind the new 9 month one. The period will remain 36 months for individuals who are disabled or resident in a care home. PRR lettings relief provides CGT relief to an individual, up to a cap of £40,000, if the property was occupied at some point as the owner's main residence and a gain was made during a period in which the property was occupied by a tenant. In the Autumn Budget 2018, it was announced that lettings relief would be restricted so it will only apply where the owner is in shared-occupancy with the tenant with effect from 6 April 2020. The change will affect tenancies that began before 6 April 2020 and means that, where the owner is not living in the property, no lettings relief will be available beyond the period for which the property qualifies for PPR. There are some other changes to PRR also (which are outside the scope of this briefing).

  • Expansion of registration of beneficial ownership register for offshore companies from 2021.

  • Expansion of registration of for ownership of trusts (onshore and offshore) – currently under consultation.

  • Further progress towards the implementation of BEPS Pillar Two - which proposes a uniform minimum rate of tax but potentially cuts across exemptions from tax given to certain funds in many jurisdictions.

  • DAC 6 – rules applying in the UK and EU wide in relation to the disclosure of cross-border arrangements. Already in law, filings will be required in Summer 2020 for reportable transactions from 25 June 2018.


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SDLT 2% surcharge for non-resident companies and individuals acquiring residential property in England and Northern Ireland

This announcement – which brings the top rate of SDLT on certain residential property purchases to 17% - follows on from a consultation in February 2019, with the aim of reducing house prices and enabling more people to be able to enter into home ownership. Initially, a 1% surcharge charge was proposed for overseas purchasers, who the government believes are inflating house prices. Then, at the time of the election a higher 3% rate was mooted. We have finally landed on a 2% rate. 

Notably, given that there are separate regimes in Wales and Scotland, the measure announced will apply to England and Northern Ireland only (unless similar measures are announced in Scotland and Wales also).

Other than the start date, we do not have any further detail on the latest proposal, so that it is assumed that it would largely follow the original draft consultation in February 2019. We are likely to get the detail in the next week or so, but meanwhile, how the new surcharge might work – based on those early proposals - is set out below.  This is a high level summary only and it may well be that some of the detail changes as a result of the responses received in the earlier consultation.  The precise law should, therefore, be considered once available.

Who does it apply to?

The new charge was announced to apply to non-UK companies and non-resident individuals.  However, it is expected that it will extend also offshore property unit trusts (eg the popular JPUT) and to contractual schemes (such as Luxembourg FCPs), which are treated as companies for this purpose and to any other non-UK resident non-natural person.  It will also apply to "closely held" UK companies controlled by offshore entities or people and to partnerships with any offshore partner.   What is defined as "close" will be reconsidered for this purpose.

Notably, there was no exemption from the charge for non-close or widely held offshore vehicles. There was lobbying that they should be excluded from the surcharge – given that that they do provide housing.  In the course of discussions, it transpired that this had been thought about, but the government had not expected them to be impacted by the new charge on the (not always correct) assumption that such entities would be able to get a lower charge by using the 6 property rule, which means that the (broadly) 5% commercial rate is used.  This may prove to be a more accurate assumption given the proposed new rate for the surcharge, but they should still be exempted from the charge to give parity with their UK equivalent entities and not penalise them, when they still will be providing housing to rent.


Aimed at non-UK resident companies and individuals, UK companies not controlled or owned by non-UK residents should be outside the scope of the new charge.  Likewise, this should be the case for those UK companies that are non-close or widely held (eg REITs or other UK funds) regardless of the identity of their owners.  The look through test for UK close companies looks unlikely to apply to UK unit trusts and contractual schemes.

The rules will also apply to trusts, which are looked through to the beneficiaries for acquisitions generally and on grants of leases to trustees (not generally look through for SDLT) where two or more leases are being acquired.

Existing provisions relating to the "close company" and "control" definitions for this purposes will be reconsidered.

So, all could get quite complicated.

How does it work?

First, the new rate is proposed to apply to dwellings only, not to other residential property.

The basic rule is that if there is more than one linked transaction, relevant prices will be added together to find the appropriate rate band.

Then, the new 2% surcharge would be applied in addition to the existing standard rates, the existing 3% additional rate, the rental element and the rates for first time buyers relief (as appropriate), across all the rate bands bringing, potentially the top rate of SDLT to 17%.  For those acquiring property into an SPV, the rate will be increased to 17% unless a relevant relief (eg lettings relief) applies and is claimed.

There are potential tripwires where partnerships acquiring dwelling have one non-UK resident or where property is held jointly with one non-UK resident.  This could bring the entire interest into the new charge.

Residential Rates




Importantly existing reliefs will continue to be available, which for appropriate purchasers would mean that the actual rate levied could be less in practice:

  • the ability to use commercial rates, if there are 6 or more properties, bringing the rate to (broadly) 5% across the portfolio

  • multiple dwellings relief, which, on a claim being made (where available), by using the average per unit price of permitted dwellings - may produce a lower charge. However, it is unlikely to be so helpful given the new surcharge applies across all the rate bands, so that the 6 property rule may become more useful in the future, if relevant

  • commercial rates for mixed-use property

  • first time buyer's relief - though the new rates would apply to this also if the buyer is non-UK resident also (eg 2% on first £300k and 7% on the next £200k and the extra surcharge would apply as usual to rates over £500k).

  • alternative finance relief


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