In his Budget Statement the Chancellor, Rishi Sunak, identified a three-part plan to protect jobs and livelihoods, fix public finances and build the future economy. With the benefit of the recently published Finance Bill, in this summary Ros Rowe examines where those changes affect the real estate industry.
The housing market
Positive steps were taken in 2020 to generate employment through reinvigorating a sluggish housing market following the initial lockdown; Government clearly intends to continue short term support in contemplation of the UK emerging from the pandemic.
- To recap, the nil rate band for Stamp Duty Land Tax (SDLT) was extended to £500,000 from 8 July 2020 until 31 March 2021. Similar action was taken by the Scottish and Welsh governments which both increased the nil rate band to £250,000. To allay concerns about a ‘cliff edge’ at 31 March 2021, the relief is to be extended to 30 June 2021 in England, Northern Ireland and Wales, although not Scotland. Further transitional relief will be provided period from 1 July 2021 to 30 September 2021 when the nil rate band is set at £250,000, for England although not in Wales.
- To prevent owners of multiple houses benefiting from the reduction, the 3% SDLT levy was maintained and now a further 2% SDLT levy will apply from 1 April 2021, where purchasers are not UK tax resident.
- To encourage greater home ownership there will be a loan guarantee scheme for homebuyers who can only afford a 5% deposit. Mortgage lenders, including major banks, will offer 95% mortgages which will benefit from a government guarantee.
The UK Community Renewal Fund/ UK Shared Prosperity Fund
While Covid-19 reliefs which support income are to continue until September, longer term finance will replace existing pandemic linked loans:
- The furlough scheme for employees, paying 80% of salary (for hours not worked) is to be retained until September, with businesses being required to contribute 10% in August and 20% in September. For the self-employed, grants will continue – one for the period February to April at 80% of average trading profits and a fifth grant equal to three months of average profits with claims open from late July.
- Special loan regimes introduced during the pandemic – Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) - will end but they will be replaced with loans from £25,000 to £10m under the Recovery Loan Scheme.
- Business rates relief will be 100% for the first three months of 2021/22, that is until the end of June and then discounted by two thirds up to a value of £2m. Problems have arisen where landlords, especially with short term and flexible lettings, include rates in the rental charge. While it has been raised with government no relief appears in the current draft legislation.
- To encourage testing of employees for Covid-19, neither the cost borne by the employer nor the amount reimbursed to employees, is subject to tax as a benefit associated with employment. Also there will continue to be an exemption from tax and National Insurance contributions where employers have reimbursed the cost of equipment necessary where an employee is working from home.
Taxes and other measures
While revenue raising cannot begin this year, the process will start next year.
- The Government agreed to adhere to its 2019 Conservative Manifesto by not increasing the rates of income tax, national insurance or VAT. However, while personal allowances are increased this year they will then be frozen; similarly the threshold at which higher rate taxes begins to be paid will also be frozen from next year. For pensions, the lifetime allowance is set at £1,073,100 for tax years 2021/22 to 2025/26; the annual capital gains allowance and the inheritance tax threshold are both frozen. The reduced rate of 5% VAT for tourism and hospitality to be retained until 30 September 2021; it increases to 12.5% from 1 October 2021 until 1 April 2022 when it reverts to 20%. However, Landfill tax is raised from £94.15 to £96.70 (lower rate £3 to £3.10) from 1 April 2021.
- The hike in the corporate tax rate to 25% starts from April 2023. Small businesses with profits of less than £50,000 will continue to pay 19% with tapering relief on profits up to £250,000 after which the full rate of 25% will apply. For the short term there is the benefit of loss carry backs – possible for 3 years but the maximum saving group wide is £760,000. Notably the 130% deduction ‘the Super Deduction’ for expenditure on business related plant and machinery (50% for certain other assets) will reduce taxable profits but this measure ends before the hike in corporation tax. While the annual investment allowance of £1m is extended for a further year, that also ends before the corporation tax rate rises.
- A new tax, Plastic Packaging Tax, will be introduced from 1 April 2022. It will apply to imports of plastic with less than 30% recycled plastic and will be levied on UK manufacturers and those who import plastic (with an exemption where the plastic is used as transport packaging).
Some good news for construction:
- The Construction Industry Scheme is simplified – contractors will have to apply the scheme if annual spend is £3m (previously an average of £1m over three years).
- Tax relief for Research & Development where the Government is aiming at expenditure of 2.4% of GDP by 2027 is being considered. A further consultation document was issued on Budget Day. However, note the cap on relief for Small and Medium Enterprises (SMEs) for R& D tax credits which applies to accounting periods beginning from 1 April 2021.
A mix of announcements which may be of interest:
- From 1 June 2021, certain payments of interest and royalties will be subject to withholding tax. Where companies seek to accelerate payment to avoid these provisions then withholding tax can apply from 3 March 2021.
- The Universal Credit uplift of £20 continues for six months with equivalent support for those claiming Working Tax credits with a one-off payment of £500, while the National Living Wage increases to £8.91 from April 2021.
- Apprentice incentive payments are increased to £3,000 for new apprentice hires and there will be an investment of £126m to triple traineeships.
- The Government is exploring digital currencies.
- Guidance is to be provided on the UK’s approach to equivalence in the financial markets – while there is an appetite for international trade, the Government is also focused on maintaining regulatory standards.
In summary, the Budget and the Finance (No2) Bill point to the Government’s hope of transitioning from the period of the pandemic, investing in major infrastructure projects and communities to grow the economy and then to pay down its debt.These comments provide an overview of the current position in March 2021. Government may make changes as the legislation proceeds through Parliament and challenges may arise due to the COVID-19 emergency. Professional advice should therefore be sought before taking action in response to any of the above items. The views expressed are the author’s and not ICAEW