Real Estate Focused 2021 March Budget Updates

SDLT break extended

The temporary increase of the nil rate SDLT band to £500,000 will continue until the end of June 2021. From 1 July to 30 September 2021 the nil rate band will sit at £250,000. Above £500,000, the standard SDLT rates and thresholds remain in force.

The holiday will not just benefit individual buyers, but companies can benefit from these changes as well, where they are not subject to the flat 15% rate. However, taxpayers should be aware that the holiday applies only to residential property and the rules concerning higher rates for additional dwellings will continue to apply (but with the 3% rate available to £500,000).

Corporation tax on the profits of big business to rise from 19% to 25% in April 2023

The UK corporation tax rate is set to rise to 25% in April 2023 for profits above £250,000.  Smaller businesses with profits of £50,000 or less will be protected from the hike and will continue paying corporation tax at the current level of 19%.

The Chancellor argued that despite the corporation tax increase the UK would still have the lowest corporation tax rate in the G7. However, while the headline corporation tax rate is important, there are many other factors that affect how much corporation tax businesses ultimately  need to pay to HMRC.  For one, the use of reliefs could ensure that the effective tax rate for a business does not increase. Second, the UK's broad dividend exemption means that usually, no corporation tax is payable on the receipt of dividends from UK and overseas companies.  Companies can also take advantage of the substantial shareholding exemption to exempt gains from corporation tax following a disposal of shares.

The proposed corporation tax rate increase may also effect non-UK resident companies that carry on a UK property rental business or have other UK property income -  as they are liable to corporation tax.

Business rates on hold

Hospitality and leisure businesses will pay no business rates until end of June. From July, business rates relief will be reduced from 100 percent to 66 percent until March 2022.

VAT 5% on hospitality and tourism

The VAT cut for the hospitality and tourism industries, from the standard rate of 20% to 5%, will be extended until 30 September 2021.

Freeport tax sites

Further, the Chancellor announced the government's plan to open eight freeports across the UK. Freeports are designed to operate as secure customs zones, usually located at ports, where business can be carried out inside a country’s land border, but where different customs rules apply.

The freeports will be eligible for:

• SDLT relief on purchases of land within the freeport zones, used for a qualifying commercial purpose.
• Business rates relief for five years and relief from secondary (employer’s) national insurance contributions.

Enhanced structures and building allowances, which will permit businesses inside the freeport  to write off investments in ten years (rather than the usual 33.3 years). In addition, the freeport will benefit from enhanced capital allowances for plant and machinery which can be written off within one year.

New temporary tax reliefs on qualifying capital asset investments from 1 April 2021 to 31 March 2023

This measure will temporarily introduce increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:

• a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances; and
• a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.

Loss Relief

The Chancellor also announced a relaxation of restrictions on loss relief. The new legislation will permit a three-year carry-back of trading losses for tax years 2020/21 and 2021/22 to be used to alleviate the corporation tax bill of the three preceding financial years. This carry-back is limited by a cap of £2 million.  This is a welcome relaxation of the loss relief rules which currently restrict the use of losses from the previous 12 month period.

This measure will benefit property development and construction companies, who have been heavily hit by the COVID 19 slowdown. However, for landlords this news will come with tempered enthusiasm as the legislation is restricted to the balance sheet's reported trading losses, which will not help the many landlords who have made their losses from rent arrears.

Further, outside the budget the following tax measures will be relevant to the property industry:

• The additional 2% SDLT charge for non-UK residents and some foreign controlled companies applicable for the purchase of UK residential property (1 April 2021). Where six or more dwellings are acquired the purchaser won’t be subject to the non-resident surcharge– in these scenarios the commercial SDLT rates apply.
• The postponed implementation of the IR 35 rules to the private sector (6 April 2021).
• The introduction of the domestic VAT reverse charge which must be used for most supplies of building and construction services. The charge applies to standard and reduced-rate VAT services (1 March 2021).