Rebuilding Britain...and Hadrian's Wall?

The clear message in the Budget today was that the Chancellor was determined to show the world that Britain was "open for business". However on closer inspection, it seems that Britain stops at Berwick.

In a very upbeat speech, George Osborne announced a number of welcome breaks for the property sector. These included a freeze on council tax (in England and Wales), the introduction of 21 new enterprise zones (in England) and, after considerable lobbying, a change in the way stamp duty land tax is calculated on bulk purchases of residential property (even in Scotland). The good news was however tempered by a stark warning: things are going to get much, much tougher for tax avoiders, wherever they're based.

Stamp Duty Land Tax ("SDLT")

The lady may not have been for turning, but it appears that this Government is. In its response last year to the consultation on investment in the private rented sector, the Government noted the arguments in favour of an SDLT concession on bulk property purchases, promoted by the British Property Federation amongst others, but declared that it would "not be taking these proposals forward at the present time". Arguments in favour of a concession included the alleged adverse effect of SDLT on large scale investment in the sector; the fact that portfolios tended, undesirably, to be broken up in consequence; and the boost to returns that a reduction in SDLT would generate - a 1% or 2% higher rate being estimated to have a 25bps impact on a yield of 3/3.5%.

In today's Budget, George Osborne has now announced that legislation will be brought forward to provide relief for bulk purchasers of residential property. SDLT will be determined, not by reference to the aggregate price, but by reference to the average price per dwelling, subject to a minimum rate of 1%. Where a bulk purchase comprises a mix of residential and commercial properties, the rate of tax applying to the commercial element (for which no relief is being offered) will be determined by reference to the total consideration payable, including the consideration for the residential element.

The concession also applies to the bulk purchase of "off plan" residential properties, although, if the actual number of properties built is less than that originally envisaged, there may be a further SDLT liability.

While this is generally good news, it may not be beneficial to claim this relief for bulk purchases of top-end residential property.

Support for First Time Buyers

The Government has pledged to support over 10,000 first time buyers to buy a home through a £250 million "FirstBuy" programme. This will involve the Government providing equity loans, jointly funded with house-builders, to assist with the purchase of new-build property.

An announcement will be made in the autumn in relation to the outcome of the Government's review of SDLT relief for first-time buyers of properties under £250,000, which is due to be withdrawn from 24 March 2012.

Stamp Duty Land Tax - Anti-Avoidance

Three SDLT schemes have been closed down with effect from midnight:

• Sub-sale relief can no longer be combined with Alternative Finance reliefs to save SDLT.
• Alternative Finance reliefs apply to certain transactions involving financial institutions such as banks, building societies and insurance companies. It was also possible to qualify as a 'financial institution' for these purposes merely by virtue of holding a Consumer Credit Licence but this is to be blocked.
• Finally, where land interests are exchanged, the chargeable consideration for calculating SDLT due is currently determined by reference to the market value of the interest acquired. To ensure that SDLT cannot be avoided, from now on SDLT will be due on the greater of market value and the amount that would be taxable ignoring the rules for exchanges.
  
  

New Enterprise Zones

As trailed, the Chancellor has announced the creation of 11 new Enterprise Zones (EZs) across England, with a further 10 to be announced in the summer following a competitive exercise among Local Enterprise Partnerships (LEPs).

The first group of EZs will be set up in Birmingham, the Black Country, Derby, Leeds, Liverpool, Manchester, the North East, Nottingham, Sheffield, Solihull, and the South West Tees Valley. The mayor of London, Boris Johnson, will also be asked to choose a suitable EZ site in the capital.

Incentives on offer in EZs will include superfast broadband, a 100 per cent business rate discount worth up to £275,000 over a five year period for businesses that move into an EZ during the course of the current Parliament, and low levels of regulation and planning controls.

In addition, consideration will be given to enhanced capital allowances for plant and machinery to support EZs in assisted areas where there is a strong focus on manufacturing, and the use of Tax Increment Finance to support the long-term viability of the area.

Provision has been made available to enable the devolved administrations to introduce similar policies if they wish.

Capital Allowances

It was announced today that the cut off period for short life assets will be extended from 4 years to 8 years for expenditure incurred from 1 April 2011 for corporation tax and 6 April 2011 for income tax. The extension of the cut off period to 8 years allows greater scope for businesses to take advantage of any potential balancing allowance particularly on fast depreciating assets. This measure will be even more beneficial in 2012 when the annual investment allowance is reduced from £100,000 to £25,000.

Also on the capital allowances front, the list of technologies on which enhanced capital allowances are available at 100% will be extended in 2011 to include certain energy efficient hand dryers.

Simplifying Planning

The Chancellor has announced a radical overhaul of the planning process in England and Wales to encourage development.

The measures announced today include: a powerful new presumption in favour of sustainable development; a shorter, more focused and inherently pro-growth National Planning Policy Framework (NPPF) to deliver more development in suitable and viable locations; new powers so that businesses are able to bring forward neighbourhood plans and neighbourhood development orders; all planning applications and appeals will be processed in 12 months and major infrastructure projects will be fast-tracked; and consultation on a proposal to allow changes of use of premises from commercial to residential, without the need to apply for planning permission.

Land Auctions

The Government has announced that it intends to introduce a "land auctions" model to capture a greater share of the land value uplift created by the granting of planning permission than is currently the case.

Land auctions (which would work alongside existing mechanisms such as the Community Infrastructure Levy) would generally involve local authorities auctioning planning permission on parcels of land, owned either by the public sector or private landowners who want to participate.

It is thought that land auctions will bring a number of benefits compared to the current system of allocating land for development, potentially making significantly more land available for development, increasing competition and bringing greater certainty and reduced risks for developers.

The Government says it will pilot the land disposal elements of the model on publicly owned land within 12 months.

Real Estate Investment Trusts

The Chancellor announced that, subject to an informal consultation, the Government will legislate in Finance Bill 2012 to remove barriers to entry, and investment in, the UK REITs regime. Two of the changes announced today are an amendment to the rules on diverse ownership (which currently state that REITs have to be owned by a minimum of five investors), and removal of the REITs 2% conversion charge. It is hoped that these changes, coupled with the change to the SDLT rules on bulk purchases, will be instrumental in stimulating institutional investment in residential property.

Zero Carbon Homes

The Budget included an announcement of a relaxation of the regulatory requirements for zero carbon homes. To ensure that it remains viable to build new houses, the Government will, from 2016, hold housebuilders accountable only for those carbon dioxide emissions that are covered by Building Regulations, and will provide cost-effective means through which they can do this.

Business Premises Renovation Allowance

The Government has confirmed it will extend the business premises renovation allowance for a further five years from 2012.

Small Business Rate Relief

The current small business rate relief holiday is to be extended for one year from 1 October 2011. Eligible small businesses are those with rateable values of up to £12,000. The Government estimates that over half a million businesses will benefit, with 330,000 paying no rates for a year.

Release of Public Sector Land

The release of public sector land is to be accelerated to encourage new homes and jobs. The Homes and Communities Agency is to announce shortly the first tranche of available sites and will publish a comprehensive strategy in May. In the future, departments holding land will publish their release programmes and be held to account for delivery of new homes and jobs created as a result. The Government says it will consider whether using a "Build Now, Pay Later" model could be applied to the sale of particular parts of public sector land to encourage development.

Investment in Infrastructure

As part of a drive to increase investment in infrastructure, the Government will provide £200 million of new funding for rail projects. The first project to be confirmed is work to deliver the Ordsall Chord, which will link Manchester Victoria and Manchester Piccadilly stations.

Carbon Reduction Commitment

It has been confirmed that carbon reduction commitment allowances will be priced at £12 per tonne of carbon dioxide. The Government says it will publish draft regulations to implement allowance sales later in 2011.

Entrepreneurs' Relief

Individuals with property investments or shares in property trading companies may be able to benefit from the surprise move the Chancellor announced today. The lifetime limit for qualifying capital gains is to be increased from £5 million to £10 million with effect from 6 April 2011. This relief means that gains of up to £10m will be taxed at 10% as opposed to rates of up to 28%. The maximum capital gains tax saving is now £1.8 million. So now, more than ever, it is vitally important to make sure you qualify for the relief. The additional relief cannot be backdated and so if a disposal is in progress, there could be considerable benefit in delaying the date of the disposal until after 6 April 2011.

Overall a good day for the property sector both north and south of Berwick. A separate e-update will be issued for Berwick itself next week.

Contact Us

If you think your business may be affected by any of the above or if you have any other questions, please contact:

Iain Macniven
Partner
0141 303 2346
iain.macniven@mms.co.uk

Lorna McCaa
Associate
0141 303 2427
lorna.mccaa@mms.co.uk

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This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.