The property and construction sector has seen more than its fair share of tax changes in recent years. From 1 March this year construction companies will need to start implementing a VAT reverse charge on the supply of construction services to other UK VAT registered businesses if these are not making an onward supply of construction services to customers, and from 6 April the sector will need to start implementing the off payroll working rules on payments to certain contractors. These changes come at a time when businesses are already trying to get to grips with socially distanced working due to Covid-19 and shortages of skilled labour and building materials due to Brexit. Introducing further tax changes would put undue pressure on an already stretched workforce, so we hope that the Government will be sympathetic when considering tax policy in the upcoming Budget.
Here is our wish list of the measures we would like to see.
Stamp Duty Land Tax
The housing market has been buoyant over the last year. This has partly been fuelled by the Stamp Duty Land Tax (SDLT) holiday and partly by city dwellers looking to escape to the country to buy larger properties with outdoor space and room for a home office. Increased demand from first time buy-to-let investors and landlords has also been reported.
To maintain momentum in the residential property market many are calling for the SDLT holiday to be extended beyond 31 March. The Government indicated in December that the holiday would not be extended but we hope in the least there will be some kind of phasing out so that sales that have exchanged but not completed by 31 March will not be subject to higher rates.
According to a construction index report published by Glenigan the value of non-residential projects started by businesses fell by 16% in 2020 compared to the previous year. Unsurprisingly the greatest decline was in projects for the hotel and leisure sector which declined 58%. Construction and fit-out businesses focussing on non-residential customers are therefore likely to experience a decline in revenue and profitability and tax incentives to encourage a return to spending on capital projects would be welcome.
The recent extension of the £1 million Annual Investment Allowance (AIA) to the end of December 2021 may encourage businesses to undertake construction and refurbishment projects this year, as the allowance gives 100% tax relief on qualifying costs and can therefore reduce the effective cost of the project. However, the allowance only covers expenditure on fixtures, fittings and equipment not the cost of structures such as walls, floors and roofs. Increasing the allowances available under the Structures and Buildings Allowance (SBA) from the current 3% p.a. may provide further incentive to get capital projects underway.
It has been rumoured that the Government may announce an increase in corporation tax from its current rate of 19% to somewhere around 23-24%. This would be an additional cost that businesses would need to fund out of declining profits and if corporation tax rates are increased, we would like to see a tiered system where higher rates only apply to profits above a certain limit. This would protect smaller businesses from increased costs whilst ensuring that those businesses that have benefitted from changing trends over the last year contribute more to repaying the budget deficit.
Capital Gains Tax
There is a lot of speculation that Capital Gains Tax (CGT) rates will be increased to align more with income tax rates. The CGT rate on sales of commercial properties dropped from 28% to 20% in 2016 so it would be an easy move to put this rate back up, but its possible that rates will be increased even further. Whilst an increase in rates seems inevitable, we hope this will be deferred until a time when we are out of lock down and there is less uncertainty in the economy.
There is also talk that CGT may be applied to the increase in the market value of properties inherited on death. Paying both inheritance tax and capital gains tax on the same asset could give rise to inordinately high tax charges and we hope that any changes in rules will provide for some kind of double tax relief to be applied.