On 24 March, the Chancellor of Exchequer delivered his 2010 Budget statement. As was widely predicted, the Chancellor did not announce any dramatic changes to the UK tax system before the general election. However, the Budget did include some measures of relevance to the finance and real estate industry and this article summarises those measures.
Stamp Duty Land Tax
The Budget included no significant amendments to the stamp duty land tax treatment of commercial property. However, as was predicted, significant amendments were made to the regime applying to residential property. In particular relief from SDLT was given for purchases of residential property up to £250,000 where the purchaser is a first time buyer and intends to live in the property. The relief is limited to a two-year period with effect from 25 March 2010. This measure will offer a SDLT saving of up to £2,500 for those able to take advantage of it. Unfortunately, the relief does not extend to property acquisitions where the consideration exceeds £250,000.
This measure to provide relief at the first time buyer end of the residential property market has been paid for by a new five percent SDLT rate for purchases of residential property where the consideration exceeds £1m. This rate will apply to acquisitions completed on or after 6 April 2011. The increase from four percent to five percent will result in an additional charge to SDLT of £10,000 for the purchaser of a £1m property.
Separately, HMRC announced that new legislation will be introduced in Finance Bill 2010 to extend the SDLT antiavoidance rules to prevent the exploitation of the special SDLT rules which apply to partnerships. This measure demonstrates HMRC’s continued use of new legislation and the existing disclosure of tax avoidance schemes rules to legislate against aggressive SDLT planning.
Real Estate Investment Trusts
UK Real Estate Investment Trusts (“REITs”) were introduced in 2006 to provide a tax efficient vehicle for regulated collective investment in real estate. The effect of entry into the REIT regime is that shareholders receiving distributions from a REIT are taxed as though it was income from property. This gives investors a return similar to investing in property directly.
The UK REIT legislation currently requires that a UK REIT distribute, for each accounting period, 90 percent of the profits from its property rental business by way of a dividend. The Budget announced that legislation will be introduced in the first finance bill of the next parliament to allow UK REITs to issue stock dividends in lieu of cash dividends for the purposes of meeting the requirement to distribute 90 percent of the profits of the property rental business. This measure will give REITs greater flexibility and make satisfaction of the distribution requirement and compliance with the REIT rules easier.
As is often the case in an election year, it is expected that a further Budget will take place shortly after the outcome of the general election. It is likely that, whichever way the election goes, the next Budget will have a considerably more significant impact on the UK tax landscape than the recent Budget. Real World will provide an update of any significant measures introduced in the post election Budget.