Following the Chancellor’s Autumn Budget 2017 update, Menzies Property & Construction sector team have reviewed the impact of Philip Hammond’s announcement upon the UK business services community.
Autumn Budget 2017 comments provided by Rebecca Wilkinson.
The Chancellor has made it clear that he wants to make “the dream of home ownership a reality for all generations” and has announced both immediate and longer term policies for making this happen.
As many predicted, part of the Government’s home ownership strategy is to assist young people get on the property ladder by scrapping Stamp Duty Land Tax (“SDLT”) for first time buyers. The relief, which will save buyers a maximum of £5,000, will mean that the first £300,000 of a property’s purchase price will be exempt from SDLT, with the balance in excess of this amount being charged at normal rates. No relief will be due if the property purchase price exceeds £500,000.
Whilst this relief will be popular with those saving to afford their first home, unless there is an increase in the availability of homes worth less than £500,000, it is likely to push up house prices due to increased demand. The longer term benefit to first time buyers may therefore be diluted, as houses become more expensive.
The second part of the Government’s home ownership strategy is to increase housing supply by making available a further £15.3 billion of financial support for housing over the next 5 years and by introducing planning reforms that will ensure more land is made available for the construction of new homes. As part of these measures, additional support has been announced for SME builders such as loan funding, which will help smaller businesses access the financing they need to deliver new homes. These measures will certainly be welcomed by SME developers and the Government should now ensure that adequate guidance is provided on how these funds can be accessed.
For any landlord who has recently transferred residential property to a limited company to avoid the new interest restriction rules, the abolition of indexation allowance from January 2018 may be a disappointment. Whilst indexation allowance does not provide a huge tax saving, it has still been one of the advantages of holding properties in a company, as it reduces the tax charge when the properties are sold, leaving more money available for re-investment. Although the abolition of this allowance will affect all companies that own chargeable assets, its loss is likely to be felt most by property investors, who typically hold high value assets and the move may be seen as yet another attempt by the Government to target landlords.
An even bigger blow will be felt by non-resident investors in commercial property, as it has been announced that the current non-resident tax exemption on the sale of these properties will end in April 2019. Historically non-resident investors in UK property were able to sell properties without incurring any UK tax charges, however sales of residential property were brought within the scope of UK tax in April 2015. The extension of UK tax to sales of commercial property is perhaps not surprising, given that UK commercial property is increasingly being bought by overseas investors. Bringing the sale of these properties within the scope of UK tax will remove the advantage that non-resident investors have over their UK-resident counterparts and will help to level the playing field.
Further changes affecting non-resident landlords are expected in April 2020. It has been announced that rental profits and chargeable gains incurred by non-residents will become subject to corporation tax, rather than income tax and capital gains tax. Detailed guidance is yet to be published, but anyone currently being taxed under the non-resident landlord scheme will need to take advice on how their tax position could change.
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