Budget briefing | Tax, Real Estate Tax |

Budget 2020: What to look out for in the real estate sector

Budget 2020: What to look out for in the real estate sector

Overview

The Budget is now confirmed for 11 March. Read our briefing to find out what this means for the real estate sector.

We have set out our thoughts on what has already been announced, what we anticipate, and what we would like to see. 

Not all changes are announced on Budget Day, sometimes they emerge on the subsequent publication of legislation. Therefore, also watch out for the Finance Bill (due to be published on 19 March) as it will contain more details of forthcoming tax changes.

We have also set out some previously announced tax changes that will come into effect from April.

Now Reading

Already announced

Several changes were announced in the general election process and we are expecting to see these confirmed. Click on each of the headings to read more. 

Expectations

So what else may be in the Budget?

It was confirmed, in the election process, that the triple lock on pensions would remain and that there would be no tax rises on VAT or NIC. However, the government still needs to find extra funding to balance its books by 2023, if they stick to what had been the policy of the previous Chancellor. On the other hand the new Chancellor has talked of "levelling up", which is likely to mean we get more expenditure on infrastructure and other capital projects around the country. This will be watched with interest by those looking to invest in the UK, for example, if they are deciding where to build more housing. However, raising the cash for this is likely to put other areas into the firing line for tax rises which could include:

Matters more widely being considered to do this include:

  • Reduction in the extent of Entrepreneurs Relief. As yet, there are no firm proposals and the Government appears to be wavering under pressure from owner-managed businesses, but shareholders in qualifying companies and business owners will remain concerned about the potential withdrawal of, or reduction in, the relief.

  • Changes to pension tax relief – in particular, this is being watched carefully by additional rate taxpayers and those currently claiming more than 20% tax relief on contributions, both of which look vulnerable.

  • Radical reform of inheritance tax (IHT), with a consultation now under way. In their guest editorial briefing, Stevens & Bolton examine the proposed changes to inheritance tax.

  • Something around more expensive housing. While a "mansion tax" may be widely divisive, something like a new council rate band may be more generally palatable (at least to Conservative voters and those with property in London).

Wish list

  • Tax reliefs to assist the environment, sustainability, climate change and zero carbon agendas. These topics are high up many peoples' and CEOs' lists of concerns, but implementation comes at a cost to business.  It would be helpful to see tax (now in the form of enhanced reliefs) being used as a tool to encourage good behaviour in this area - and sooner rather than later.  These reliefs could include:

    - reduced or zero SDLT on a top EPC rating;

    - new capital allowances – including maybe extending SBAs for certain carbon neutral expenditure or energy efficient expenditure in the residential sector; and

    - zero-rating of VAT for appropriate expenditure e.g. on refurbishment to make buildings more sustainable. If zero-rating proves too expensive (which was what proved to be the case when this was previously mooted by the industry for general repairs and maintenance) perhaps (now we have left the EU) a lower 5% rate could be considered. This issue is ever more important as housing targets are still a long way from being met and VAT reliefs may impact positively on viability and in speeding up delivery of homes.

    No doubt the industry would be happy to provide suitable costings to assist with the relevant cost benefits analysis.

    Partner Russell Warren discusses the way in which the tax regime could help combat climate change in this briefing.

 

  • A new form of professional investor fund structure - neither listed nor heavily regulated, which could be used to meet the needs of more sophisticated investors for whom UK's existing range of fund structures do not provide a complete solution. Perhaps we could see something that looks like an unregulated contractual scheme - that in practice would, in a real estate context serve to deliver something like an old form JPUT but onshore (though not adopting a trust structure). The Investment Association is working with Association of Real Estate Funds (AREF) on this already, so some announcement following Brexit would be good for the industry.


  • At a more granular level, the industry has been lobbying for some time for an exemption from the construction industry scheme for landlords' contributions to tenants carrying out landlords' (not tenants') works and for the ability to make CIS group certifications.

Gentle reminder

  • 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.

  • 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.

 

Return to Budget Watch 2020.

Further reading

Read more on the 3% SDLT surcharge.

Read more on the changes to "IR 35".

Read more on the extension of corporation tax to Non Resident Corporate Landlords (NRCLs).

Read more on the reverse charge for VAT on certain construction services.

For further information, please contact

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