Another March day and another Budget from George Osborne delivered against a backdrop of fairly grim economic statistics and a significant degree of press and public concern regarding tax avoidance and "immoral" use of reliefs. With all this going on in the background, the Chancellor's delivery of his speech was as positive as possible with his new phrase of the day being references to Britain as an "aspiration nation". I am not sure whether that phrase is really going to catch on (and perhaps only the front pages of tomorrow's newspapers will really let us know) but in principle the Chancellor had good news for those aspiring to drive cars, drink beer and potentially even get on the housing ladder.
Unlike in previous years, there was little on the specific tax front for those interested in property issues. The main points of interest are set out below together with a few bullet points on other interesting Budget measures. The breathing space on specific property tax measures is in a sense quite a relief after the wide ranging changes to the taxation of high value residential property announced last year, which are in fact still working through the system (updates on some of them are below). Points to keep an eye on are:
- What was originally known last year as the annual charge became known in December as ARPT and is referred to in these new Treasury documents as the "annual tax on enveloped dwellings" or ATED. Perhaps of more interest than the ever changing acronym is the announcement that there will be some changes to the draft legislation published in December to introduce additional reliefs, modify the conditions for some of the previously announced reliefs and alter the requirement to make returns if companies cease to be eligible for relief or become liable to an increased charge. There are also to be changes to introduce rules for alternative finance arrangements, provide exemptions for charities and certain others and set rules for various tax management procedures. We await precise details of these changes.
- There was some hope before the Budget that the Chancellor might announce that the timing of the proposed extension of reliefs from the 15% SDLT rate (to mirror those to be introduced for ATED) would be brought forward especially the relaxation of the property developer relief. The press notices issued today however still state that the changes to the 15% rate rules will come into effect from the day of Royal Assent to Finance Act 2013 and not before. The 15% SDLT rate is therefore still a worry for a number of corporate landlords.
- It had already been announced in the Autumn Statement 2012 that the SDLT rules on "transfer of rights" (often referred to as sub-sale relief) would be amended with the idea being that the SDLT planning strategies which utilise this relief would finally be put to bed. Following the consultation process, we now know that this draft legislation will itself be revised and we await details as to what the revisions will be.
- Information has also been published today to the effect that legislation will be introduced in Finance Bill 2013 to put "beyond doubt" that certain SDLT avoidance schemes which in the Treasury's eyes "abuse" the transfer of rights rules do not work. Unusually, these changes will have retrospective effect to 21 March 2012 in accordance with the announcement in Budget 2012 that the Chancellor would use retrospective legislation to close down future SDLT avoidance schemes if he saw fit. This measure would be the first use of that power in the context of SDLT and will impose a requirement on purchasers who have used such schemes to notify HMRC of SDLT due by 30 September 2013. Anyone who has used one of these schemes should now get in touch with their adviser to determine their position.
- One issue which is perhaps not of immediate interest to those involved in property but which might well have an impact is an announcement today that the Government is to consult on measures to remove the presumption of self-employment for LLP members (to tackle the disguising of employment relationships through LLPs) and to counter the manipulation of profit and loss allocations by partnerships including a company, trust or similar vehicle in order to secure tax advantages. We still await the consultation document on these proposals but they are of concern to the property industry (as well as the wider world of course) as LLPs or partnerships have been much used to structure property holdings.
- Another announcement of wider interest is the entirely expected announcement that the measures to introduce a general anti-abuse rule (GAAR) are going forward. To be noted is that the GAAR will apply to the new annual tax on enveloped dwellings.
- There are a number of other points of interest arising from the Budget:
- the main rate of corporation tax (which is already set to reduce to 21% from April 2014) is to reduce further to 20% from 1 April 2015. From that date, there will only be one 20% rate of corporation tax for all companies;
- in an attempt to encourage employment, a new £2,000 employment allowance for all businesses and charities will be available to be offset again employer Class 1 NICs from 2014;
- the government is to increase the exempt threshold for loans provided to employees (for items such as season tickets) from £5,000 to £10,000 with effect from 6 April 2014;
- the capital gains tax exemption for reinvesting gains in shares qualifying under the Seed Enterprise Investment Scheme is to be extended to gains accruing in the 2013-14 tax year. The relief will apply to half the re-invested amount;
- as announced in December 2012, certain amendments are to be made to the new controlled foreign companies rules in order to counter tax planning opportunities and to ensure that the rules work as the government intended;
- stamp duty and stamp duty reserve tax are to be abolished from 2014 on share transactions in UK companies quoted on small company growth markets such as AIM; and
- legislation is to be introduced (with immediate effect) to close loopholes used to attempt to avoid tax liabilities arising on loans by close companies to their participators. The changes will affect loans and other payments made to participators via intermediaries and will update the repayment rules.
Finally, a positive non-tax announcement by the Chancellor is of the "Help to Buy" scheme designed to boost the housing industry, available for homes with a value of up to £600,000. Under the scheme, the buyer will be required to fund a 5% deposit on a new home. The government will then fund up to 20% of the cost of the home through a shared equity loan, repayable when the home is sold. This shared equity loan will be interest-free for the first five years and the remainder of the purchase price will need to be funded with a standard mortgage.
In an additional measure to boost the industry, the Chancellor announced a new mortgage guarantee scheme, which will be available for a period of three years from the start of 2014. Under this scheme, the government will step in to compensate a lender where the borrower defaults on a loan. The guarantee will cover mortgages for new or existing homes.