Carbon Reduction Commitment Simplification

The Government intends to simplify the CRC energy efficiency scheme from 2013. The performance league table will be abolished. DECC will publish details of the simplifications and the Government has confirmed that it will review the effectiveness of the CRC scheme in 2016. The review will consider whether the CRC scheme remains the appropriate policy to meet carbon reduction objectives and will consider alternative approaches. The tax element of the CRC scheme introduced at the Spending Review in 2010 will be a “high priority for removal when public finances allow” although with net debt only due to be reduced in 2017-2018 rather than as predicted in 2015, uncertainty remains as to when such a time will come.

The forecast allowance price for CRC remains unchanged at £12 per tonne of carbon dioxide in 2013-2014 and £16 per tonne of carbon dioxide in 2014-2015. From 2015-2016 onwards the allowance price will increase in line with the RPI.

Private Finance Initiatives

The existing PFI scheme, which sees private firms working with the state on long term infrastructure projects, will be replaced with a new programme that should give a greater role to the tax payer and speed up the procurement process. Whilst the Government says it remains committed to private sector involvement in delivering infrastructure, it recognises the concerns surrounding PFI and the need for reform. At the same time as the Autumn Statement the Government published a document called “A New Approach to Public Private Partnerships”. The document sets out the Government’s new approach to involving private finance in the delivery of public infrastructure and services through a long-term contractual arrangement, called “Private Finance 2” (PF2). According to the Government, this continues to draw on private finance and expertise in the delivery of public infrastructure and services whilst addressing past concerns surrounding PFI and responding to the recent economic changes.

Empty Property Rates

The Government will exempt all newly built commercial property completed between 1 October 2013 and 30 September 2016 from empty property rates for the first eighteen months from completion, subject to consultation and any state aid limits.

Small Business Rates Relief

The Government is extending the temporary doubling of the small business rates relief for a further 12 months from 1 April 2013.

General Anti-Abuse Rule

The Government will introduce the UK’s first ever general anti-abuse rule which it hopes will provide a significant new deterrent to “abusive avoidance schemes”. The General Anti-Abuse Rule comes into force on 1 April 2013.

This is one of several other significant new developments which the Government believes will help prevent, detect and tackle tax avoidance and evasion in the future. The Government will also consult on the introduction of a new information disclosure regime and penalty powers to target tax avoidance schemes. The Government also proposes to increase expenditure in HMRC to ensure additional revenue will be raised from tackling tax avoidance.

Flood Defences

The Government will increase investment in flood defences by £120 million over the remainder of this spending review period. This will be particularly welcome to those property owners whose buildings lie in high risk areas in view of the stand-off between the Government and the ABI in terms of insuring such property 1.

Institutional investors have avoided high flood risk areas for some time but there will be historic investments that are exposed. So far insurance seems to have been available but it is uncertain how long this will continue and, if so, at what price. Tenants may also face difficulties in terms of the coverage of their equipment and business interruption risk.

No mansion tax on expensive properties

The Chancellor blocked the proposed new mansion tax on expensive properties despite pressure from the Liberal Democrats. In the March 2012 Budget the Chancellor raised stamp duty on sales of property of £2 million and above from 5% to 7% and to 15% on properties purchased through corporate wrappers. On 11 December 2012 the Government confirmed that the Annual Residential Property Tax and extensions to the CGT regime will go ahead as planned in April 2013. Draft legislation has been published and will be the subject of scrutiny by our tax group. Legislation will also be introduced in the Finance Bill 2013 to amend a complex element of lease premium relief rules.

Red Tape Challenge – water regulation

The Government has announced phase 2 of the red tape challenge which will include scrapping or improving 63% of the 168 water regulations and will also assess whether competition can be extended by allowing self-lay operators to undertake the connections between developments and the live water supply network.

TOGC’s

HMRC has confirmed a significant change of policy regarding whether the grant of an inferior interest in a property can qualify as a transfer of a going concern. HMRC now accepts that it can.

This follows the case of Robinson Family Limited 2 where a property development company purchased a 125 year leasehold interest which it intended to develop into 6 units. The dispute with HMRC focused on one unit where, because of a restriction against the sale of part, RFL sold the unit by way of a sublease of 125 years less 3 days with the benefit of the proposed occupational letting. HMRC argued that this could not be a TOGC as the transferor had not transferred the same interest in land as that used by the transferor in his business. According to HMRC, it could only be a TOGC if the full term of the lease had been assigned. Result: The Tribunal found in favour of RFL. The three day reversion did not alter the substance of the transaction which was to put the transferee business in a position where it was able to continue the previous letting business of the transferor.

This means that:

  1. Future grants of leases where the reversion retained is sufficiently small may amount to a TOGC. According to HMRC, this means no more than 1 per cent of the value of the property immediately before the transfer. Any more than that and HMRC will regard that as strongly indicative that the transaction is too complex to be a TOGC.
  2. VAT historically charged on such disposals may be reclaimable from HMRC.
  3. The SDLT overpaid (i.e. on the VAT element) may also be reclaimable.

This is a significant change in treatment.