The property and construction sector has experienced real challenges of late. Growth has been subdued, with issues of housing supply, scarcity of affordable land, tax changes, and planning approvals remaining a problem.
OVERSEAS INVESTORS
Some of the biggest tax changes in recent years have impacted overseas investors of UK property bringing them into the UK tax regime for the first time. The UK is still an attractive investment and exchange rates have benefitted overseas investment but the uncertain economic climate has definitely impacted the very high value property market. The structure of holdings and types of investment can result in very different outcomes, and although tax should not drive the commercial objectives, obtaining good advice is key.
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PROFESSIONAL SERVICES
The property and construction sector comprises a wide range of professional services including architects, surveyors, planners and estate agents. Advice is commonly sought to ensure the business is adequately structured to help with succession or exit planning. This planning may be linked to tax efficient remuneration strategies which can help ensure that key individuals are retained within the business. Other tax reliefs should not be overlooked. For example, R&D relief may be relevant and should be considered by professional services firms.
UK INVESTORS
UK investors, both individuals and corporates, have been hit hard by tax changes, particularly with residential properties. These changes include the ATED rules, increased Stamp Duty Land Tax, the introduction of the Stamp Duty surcharge (3%), changes to tax relief for interest, and for individuals, residential property gains being excluded from the reduced capital gains tax rates. To maximise returns and avoid any pitfalls existing investment structures should be continually reviewed. For new investments tax advice at the outset can ensure the most tax-efficient structure and maximise returns.
CONSTRUCTION
With ever tightening margins, strong finances are essential for construction companies. The workforce required to undertake projects has been hit by uncertainty due to changes to pay requirements, such as increases in the national minimum wage and an expansion of the IR35 rules. There are also specific tax requirements such as CIS and upcoming changes to the VAT rules.
Training and development of employees is important to ensure staff retention at a time when demand for workers is outstripping supply. To gain a competitive edge, businesses should look at introducing tax efficient employee incentives or rewards.
DEVELOPERS
To be successful, developers need to maximise the output from the land and buildings developed. This may sound simple but in recent years margins have been squeezed for many reasons. In addition, stock can take longer to sell resulting in potential cash flow problems jeopardising the business.
Strong finances are key to both survival and success as they allow flexibility and agility in the market. Better finances mean greater buying power which in turn can ensure land is more easily obtainable, opportunities actionable, and therefore decisions are not taken out of the business’s hands. Good financial information and cash flow forecasts, ensuring budgets are set and managed are crucial.
The ever-changing tax rules need to be understood and built into the plans and structure of the business. Any tax reliefs such as land remediation relief, capital allowances or even R&D relief, should be claimed where available.