The Budget this spring contained a number of new measures intended to stimulate the economy. This briefing looks at the points of particular interest to the real estate sector.
Cut in Corporation Tax
A further cut of one per cent in the rate of corporation tax for larger companies was announced. In addition to the reductions announced previously this brings the rate down to 26 per cent from April 2011, and reducing further by one per cent each year to 23 per cent in April 2014.
This is of general interest across all sectors of the business community and is intended to support the Government’s objective of delivering a more competitive corporate tax system providing the right conditions for business investment and growth.
SDLT relief for multiple residential purchases
This new relief is being introduced where a buyer buys more than one dwelling in a single transaction from a single buyer. The rate of SDLT payable will be fixed by reference to the mean average price per dwelling rather than the aggregate price as under current rules. The minimum rate of SDLT for such purchases will be one per cent. It is intended that this relief will also be available for new build purchases off plan prior to construction. This measure will take effect from the passing of the Finance Act 2011 expected to be during the summer.
Imagine, for example, a property investor buys three houses at the same time from the same seller for £280,000, £260,000 and £150,000 being a total purchase price of £690,000. Under current rules SDLT of £27,600 would be payable at the rate of four per cent. However, the average price is £230,000 so under the new rules SDLT of only £6,900 would be payable at the rate of one per cent.
This relief will be of particular interest to investors buying housing in bulk. It is intended to reduce the barriers to investment in residential property and promote the supply of private rented housing.
Real Estate Investment Trusts (REITs)
The Government has announced a consultation process on the simplification of REITs with the aim of reducing barriers to entry and investment and to reduce the regulatory burden on REITs. In particular, the consultation will consider relaxing the listing requirement and removing the two per cent conversion charge for companies joining the REITs regime. If these changes went through they would be a welcome piece of deregulation and should make REITs a more attractive property investment vehicle for smaller entities. Any changes to the current system would not take effect until the summer of 2012 at the earliest.
Furnished holiday lettings
The previous Government had proposed to abolish the generous tax treatment of furnished holiday lettings altogether. The current Government has announced that it is keeping the current system but tightening up some aspects of the rules. In future, loss relief from such a business may only be offset against income from the same furnished holiday lettings business. To fall within the rules a higher level of availability and occupancy will be required. For the first time the rules are extended to also cover properties in Europe.
Changes to some of the detailed provisions of the SDLT rules were introduced at the Budget with immediate effect to ensure that certain SDLT avoidance schemes are ineffective. The tax authorities continue to tinker with this legislation to counter perceived SDLT avoidance. Whilst some schemes may continue to be successful we would advise taxpayers being offered any such schemes to view them with caution.
Help for first time buyers
The First Buy Scheme is being set up funded jointly by the Government and house builders. This aims to provide over 10,000 households with equity loans of 20 per cent of the cost of new build homes. Loans will be interest free for five years and become repayable on the resale of the property. The first time buyer must provide their own five per cent deposit. This may help to boost the sale of new houses, although we would anticipate that the funding available may fall far short of meeting demand.
The Government is reviewing the temporary SDLT relief for first time buyers of lower value properties which is currently due to run until March 2012. The outcome of the review is due in the autumn. It is possible the relief may be extended.
Small business rate relief
This relief intended to help small businesses through the recession will be extended for a further year from 1 October 2011. Eligible small businesses occupying premises of rateable value up to £6,000 get full rates relief and then tapered relief is available up to a rateable value of £12,000.
Business premises renovation allowances
These allowances will be extended for a further five years from 2012. This tax allowance is intended as an incentive to renovate derelict and unused premises in disadvantaged areas and bring them back into use.