Although the 2007 PBR was fairly quiet for the property industry, some general PBR announcements will impact on the property sector and some minor specific property-related changes were also announced.

Capital Gains Tax

As widely publicised, major reforms to the capital gains tax regime for individuals, trustees and personal representatives are planned. A new flat rate tax of 18% on capital gains is proposed regardless of the period of ownership of an asset, to be introduced by the Finance Bill 2008. The movement to a single rate will be accompanied by the withdrawal of taper relief and indexation allowance and the abolition of the "kink test" for assets held at 31 March 1982 and halving relief. The proposals have caused strong reactions among tax professionals. It remains to be seen whether the Government will bow to pressure to re-consider but a wholesale withdrawal is most unlikely.

This measure is not bad news for everyone: it will benefit buy-to-let investors with large unrealised gains and those with more than one home, as well as investors who hold property interests that do not qualify under existing taper relief rules for business asset taper relief if they are able to postpone disposals until after 6 April 2008.

Stamp Duty Land Tax (SDLT)

Anti-avoidance legislation: investment partnerships

The Finance Bill 2008 will correct existing SDLT anti-avoidance provisions in the Finance Act 2007 to ensure that transfers of interests in property within investment partnerships will not trigger an SDLT charge. This change will be retrospective and apply to transactions that occurred on or after 19 July 2007.

The amendment is to address the problem faced by some property investment partnerships where each time the size of share held within the partnership changes there is a charge to SDLT, regardless of whether there is any consideration or whether the parties are connected in any way.

The change is expected to apply retrospectively from the 2008 Budget date, but until it takes effect, the current provisions continue to apply with tax being paid and returns made in accordance with the existing law.

Notification thresholds for land transactions The Finance Bill 2008 will change the SDLT rules for notifying HMRC about residential and non-residential property transactions where the chargeable consideration is less than £40,000. Leases will only have to be notified when the lease is for a term of seven years or more and where any chargeable consideration is more than £40,000 and the annual rent is more than £1,000. These changes will apply to transactions undertaken on and after Budget 2008 and will reduce the administrative burden on low value land transactions.

Consultation: high value residential property transactions

In its continued campaign against SDLT avoidance, the Government will consult with interested parties about the use of special purpose vehicles to avoid payment of SDLT on high value residential property transactions. If this exercise indicates a significant level of avoidance, we can expect further curbing measures to be introduced. There are hints of a reconsideration of proposals dropped a few years ago for the imposition of a "land rich" company stamp tax charge, though not for commercial property (at least so far). Consideration is also to be given to extending the current SDLT avoidance scheme disclosure rules to the direct acquisition of high-value residential property, which is currently exempt from disclosure. Purely residential transactions are not currently caught by the SDLT anti-avoidance disclosure regime.


Consultation: simplification

The Government is to seek views through a consultation process as to how VAT rules and administration in the EU could be simplified. Five key candidates for possible simplification are identified: the 'option to tax', partial exemption (including the capital goods scheme), frequency of return submissions, VAT retail schemes and matters for simplification at the EU level. Interested parties can complete a questionnaire at:

Reduced rates on empty homes

The PBR announced an extension to the reduced 5% rate of VAT on works of renovation or alteration to residential properties that have been empty for at least 3 years. From 1 January 2008, the reduced rate will be extended to works carried out on properties that have been empty for at least 2 years. Again, this is consistent with the Government's overall objective of addressing the housing shortage and using existing housing stock.


The Government has concluded that there is no compelling case to change the REITs listing requirements after reviewing the viability of UK REITs. The REITs regime, however, will continue to be monitored and there are as yet no signs of residential REITs despite calls for their introduction.

Planning Gain Supplement

The Government has confirmed that it will not proceed, at least in the next parliamentary session, with the proposed planning gain supplement. Initially proposed in the Barker Review on housing, the PGS was to be a levy on developing land to raise additional resources to invest in the infrastructure needed to support housing growth. The Government still intend legislate in the Planning Reform Bill to empower local planning authorities in England to apply planning charges to new developments, together with negotiated contributions for site-specific matters. Again, income raised by this measure will be used to fund the infrastructure needed for regional and sub-regional development. Nothing has been said about how the issue is now to be approached in Scotland, but it is anticipated that it will be dealt with through the provisions of the Planning (Scotland) Act 2006.