What’s impacting property & construction
The UK property and construction sector encompasses a wide range of businesses from small scale buy-to-let investors to multi-national construction groups. Over recent years the sector has seen many changes, in particular the changing tax rules. The general economic environment and political uncertainty have had a significant impact on the sector.
On the up-side, the government has shown commitment to supporting the development of new housing and infrastructure, opening up opportunities to develop and invest in different types of property. New technology and innovative build techniques bring exciting new advancements to the sector and property is still regarded as a safe investment in the long term.
Supporting the property and construction sector
Ralph Mitchison –
Property and Construction sector specialist
We advise commercial and residential developers, contractors, owners and investors, as well as sector-dependent clients. We work closely to find solutions to industry issues, utilising our expertise in everything from business strategy and corporate finance, to audit and tax advice.
Government announce new levy and new tax for developers
On 10th February 2021 the Government announced a five point plan to bring an end to unsafe cladding which includes two changes to taxation for developers.
No real details were announced regarding the new forms of taxation but from the information available it would appear that this is expected to take the form of a ‘Gateway 2’ Levy, with a new tax to be introduced from 2022.
The levy will be applied when developers seek permission to develop certain high-rise buildings in England so would be targeted to certain developments.
However it would appear that the new tax , which is expected to raise at least £2 billion over a decade, will apply more widely to all UK residential property developers irrespective of whether they have been involved in high-rise projects on the basis that all developers will benefit from the restoration of confidence into the UK housing market. The devil will be in the detail and there is reference in the plan to ensuring ‘the largest property developers make a fair contribution’ so perhaps the tax will be aimed at the larger developers, maybe only applying if turnover/profits exceed a certain level.
For now we must await the consultation.
Key challenges for the Property and Construction Industry
This 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.
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 but is often overlooked by professional services firms.
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.
With ever tightening margins, strong finances are essential for construction companies. The workforce required to undertake projects has been hit by uncertainty due to Brexit and 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.
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. Further changes are coming in April 2020 with more under consultation
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.
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.