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Autumn Budget 2021: Impact on the property sector

Employment up - Investment up - Levelling up

The Chancellor was determined to make us believe the way forward is full of opportunity, for everyone. With more major investment promised in infrastructure, today looked like great news for the construction sector – while residential developers were taxed heavily for the cladding crisis. Our immediate comments, and link to detailed analysis, are set out below.

Construction industry

Investment in attracting and retaining a workforce for the next 50 years

Infrastructure projects rely on construction companies who can deliver the work and the construction industry has been facing a recruitment crisis for many years. The average age of a UK worker on site is now over 50. With unemployment forecast to be 5%, the industry now has to invest heavily in making it a top choice for school leavers and graduates – and then invest in training these recruits so they can deliver.

Investment in plant and machinery – March 2023 deadline for maximum tax relief

The ‘super deduction’ of 130% of expenditure on plant and machinery by limited companies continues until March 2023. Those investing in plant and machinery should ensure that they make purchases before March 2023 if their expenditure is likely to be greater than £200,000 per year.

Research and development (R&D) tax credits

Tax deductions for research undertaken overseas will not be available from April 2023. Innovation is critical to the success of the construction industry and many companies have claimed this generous tax relief. Firms undertaking research overseas need to consider whether it is possible, and beneficial, to bring this back to the UK, or factor in a loss in this tax relief in their budgets after April 2023.

Investors

Business rate reform

The business rates reform announced comprised of an increase in the frequency of valuations to every three years from April 2023. This will help occupiers of properties when values fall (retail is an obvious example) but is not the adventurous reform that could have been embraced.

Some immediate, short term, reliefs were announced to help our high streets recover. Business rates will be halved for the leisure, hospitality and retail sectors in 2022/23. While the relief is capped at £110,000 per business this is forecast to cost the Treasury £1,860 million – providing welcome support to these sectors. Landlords whose tenants operate in these sectors should benefit from the improvement in the financial position of their tenants as their ability to collect rent should improve.

The commercial rates payable by all businesses are to be frozen for 2022/23 – at a cost to the Treasury of £845 million. All occupiers will benefit, and thus landlords, whose strength is dependent on the financial strength of their tenants.

Property investors improving their buildings, and adding value, will benefit from 100% business rates relief to existing properties from 1 April 2023 until 31 March 2028. The cost is not huge to the Exchequer, a cumulative figure of £575m to 2027, but it is a welcome incentive, and could be used to help fund some of the works that will improve the carbon efficiency of commercial property.

Capital allowances

Investors who own properties through a partnership, or in their own name cannot claim the ‘super deduction’ for purchases of plant and machinery, will benefit from the extension of the Annual Investment Allowance (AIA) to March 2023. This allowance, which currently allows businesses to claim 100% of expenditure on plant and equipment up to £1,000,000 per year against their taxable profits, was due to reduce to £200,000 in December 2021. Businesses that are now planning to acquire plant and equipment should consider making sure the purchases are completed before 31 March 2023 so that they can claim a full tax deduction on purchase.

With more major investment promised in infrastructure, today looked like great news for the construction sector.

Developers

Residential Property Developer Tax

The big losers in this Budget are residential property developers. Any developer whose profits (across the group including joint ventures) exceed £25 million will pay a further 4% tax on their profits from April 2022. It is forecast £1,125 million tax will be collected to March 2027. When the Chancellor announced this tax last year, he said it would remain in place until £10 billion had been collected – so we expect the tax to be with us for many years. There are no reliefs/enhanced deductions for remediation works on buildings with cladding, or for works already undertaken, and all residential developers are required to pay. Developers who have addressed this issue using their own funds, or have never used cladding, are paying for the sins of their colleagues, which does not feel fair.

Developers on the cusp of reporting profits of £25 million may decide to slow their development pipeline to avoid triggering a liability to this tax.

On a more positive note, developers will be able to continue to claim the super deduction for investment in plant, machinery and office equipment until March 2023.

Individuals

We would highlight two changes on the taxation of individuals that will soon be introduced. Investors and developers whose income includes significant dividends should be aware that the tax payable on dividends will increase by 1.25% from April 2022, increasing the top rate of taxation on dividends to 39.35%.

Individuals selling investment properties are currently required to file a tax return reporting their capital gain, and paying the tax due, within 30 days of the disposal. The reporting and payment date has been extended to 60 days for disposals after 27 October 2021. The extension is welcome as 30 days is just not long enough when there is any complexity to the CGT calculation.

Would you like to know more?

If you have any questions or would like to discuss your specific circumstances, please get in touch with your usual Blick Rothenberg contact.

You can also visit our Budget Hub, where you can find our commentary and a range of tools to help you better understand how the Budget may affect you.

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