Our tax experts share their initial reaction to Chancellor Rishi Sunak’s budget and what the real estate sector need to know.
The Chancellor's budget speech yesterday was focussed on supporting the UK's recovery from the COVID pandemic. Although the Government will be withdrawing existing support schemes, this comes alongside significant investment to encourage growth. UK borrowing has now reached a peacetime record of £355bn this year (our national debt is now in excess of £2.3 trillion - over 100% of GDP). The bill for the Government’s unprecedented spending on the COVID crisis is going to have to be paid and tax rises were expected.
The speech was against a background of a fall in GDP for 2020 of 9.9%, the largest fall in 300 years and the largest decline in the G7 nations. The Chancellor announced that the success of the UK’s vaccine programme means the UK can now chart a clear course out of lockdown. As a result, the Office for Budget Responsibility expects the economy to recover quickly when restrictions are lifted and grow by 4% this year and over 7% in 2022.
Despite the flurry of transactional activity in the run-up to the budget over fears of a hike in capital gains tax rates, this is the dog that did not bark. Indeed, the Chancellor made clear there would be no immediate increase in the rates of income tax, capital gains tax, National Insurance contributions or VAT. However, this is not all it seems since the Chancellor said he would freeze the current thresholds for income tax, capital gains tax, inheritance tax and pensions allowances – in effect, increasing tax in coming years by the back door.
Some of the announcements most likely to be of immediate interest to those of us operating in the real estate sector include:
- The headline corporation tax rate is set to increase from its current 19% to 25% from April 2023. The 19% rate will be maintained for companies with profits of less than £50,000 and then taper up to the 25% rate for profits over £250,000.
- That tax rise is going to be partly offset by a plan to boost business investment through a new 130% capital allowances 'super deduction'. This is intended to last for two years.
- The ability to carry back trading losses rule will be temporarily extended from the existing limit of one year to three years. This will be available for both incorporated and unincorporated businesses but will be subject to a £2 million cap.
- The temporary tax measures to support the hospitality sector and the housing market will be extended. The VAT cut for hospitality will be maintained at 5% until this September and a 12.5% rate will then be applied for the following six months before reverting to 20%. For the following nine months, business rates will be discounted by 66%.
- The Stamp Duty Land Tax holiday for properties up to £500,000 will be extended until the end of June, then reduce to £250,000 until 1 October, at which point it will revert to the previous limit of £125,000.
- Freeports – the Government announced eight locations in England for Freeports. Businesses in these sites will be able to benefit from a number of proposed tax reliefs
- an enhanced 10% rate of Structures and Buildings Allowance;
- an enhanced capital allowance of 100% for companies investing in plant and machinery for use in Freeport tax sites;
- full relief from Stamp Duty and Tax on the purchase of land used for a qualifying commercial purpose;
- full Business Rates relief; and
- employer National Insurance contributions relief for eligible employees.
- The furlough scheme - which pays 80% of employees' wages - will be extended until the end of September. Employers will be asked to contribute 10% in July and 20% in August and September. In addition a further 600,000 self-employed people will be eligible for help as access to grants is widened. A number of restart grants and recovery loan schemes were also announced
As more information emerges over the next few weeks, we will give further updates. In the meantime, if you have any questions or would like to discuss any of the announcements further, please don't hesitate to contact the article authors or your usual Clyde & Co contact.