What was announced?
The statement was almost as notable for what it did not include, as what it did. The only significant announcements were as follows:
Interest relief restrictions
The adoption of the interest deductibility restrictions from April 2017 onwards will continue. The basic elements of the rules will remain as previously announced - a cap on deductions at the higher of (A) 30% of UK EBITDA, or (B) the worldwide group's net ratio of interest to earnings (subject to a group-wide de minimis of £2m net interest costs). People had been hoping that the changes would be softened and delayed given the European Union has announced a more generous version of the same rules for 2019 (two years later) but the Government has decided to proceed as planned. Whilst the UK still remains one of the best places in Europe to invest in real estate from a tax perspective, this arguably erodes one of the main benefits. See further details.
Loss relief restrictions
The previously announced flexibility on use of corporation tax losses will be introduced from April 2017, together with the proposed 50% usage cap on losses over £5m (per group).
An unexpected statement that the Government is "considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime" was made. It is not clear what this means or who will be affected, but it is likely to be targeting the income of non-residents who own UK real estate as there is reference to ensuring "equal tax treatment" for taxpayers. This could in theory also be a backdoor to introducing capital gains on commercial property owned by non-residents in the future, (although there is no hint of such a major change in the press release). The interest relief and loss relief restrictions noted above will also apply to non-residents (something broadly anticipated by the property community). The good news though is that the corporation tax rate is due to fall (see below) so the rate of tax on rental income for non-resident landlords will be less than the current 20% rate if corporation tax is imposed instead.
The expected reductions in the corporation tax rate (falling to 17% by 2020) will continue. In addition, following a recent consultation the UK's "substantial shareholdings exemption" (an exemption from corporation tax on sales of trading companies) is to be simplified from April 2017 and will be more comprehensive in scope. Whether this will extend to property trading companies is uncertain - the draft legislation will disclose more.
- The planned reduction in business rates over the next five years will continue (amounting to £6.7 billion in total).
- A ban on fees charged to residential tenants by lettings agencies is to be introduced.
- Various stimulants for the housing market are proposed, including a Government-funded regional pilot of "right to buy" for housing association tenants.
What was not announced?
No announcements were made in the statement about shortening the payment/filing windows for SDLT or capital gains tax for non-residents.
No changes were made to the SDLT rates or thresholds, or to the SDLT reliefs. In particular, the 12% rate and 3% second home surcharge will continue to dampen the top end of the property market in the southeast of England.
No additional, targeted anti-avoidance measures appear to have been announced.
No more Autumn Statements!
Despite this being Philip Hammond's first Autumn Statement, it was also his last. From 2017 onwards the Budget will move to the Autumn instead, with a pared back "Spring Statement" following each spring (supposedly devoid of any significant new fiscal statements).