The changes I expect to see include:
Business Rates Regime for small businesses: While changes are expected, it will be interesting how many businesses in the high street will be impacted as previous changes have affected very few.
Corporation Tax: ‘Modern methods of construction’ (MMC) are being talked about at many conferences. There are many challenges linked to the large-scale production of units in factories. However, an announcement about the expansion of tax relief that can be claimed through R&D tax credits would benefit commercial and residential developers and encourage MMC to be adopted by a wider range of businesses. The construction industry faces a crisis regards the size of the workforce. Almost half of UK construction workers are over 45, and 20% are over 55. This is due to a lack of training in the last 15 or more years, compounded by the fall in the number of EU workers coming to work on building sites. As such, the industry is going to have to be more innovative about how they build. R&D tax credits encourage this innovation, and there is a call from many industries for this support, so I think an increase in R&D tax relief is likely.
Capital Allowances: Investors can claim capital allowances up to £1,000,000 of eligible expenditure on a commercial building (and a very restricted element of works to the common parts of a residential block of flats). I expect this to stay.
Structural Building Allowance: This was introduced in October 2018. It involves a 2% deduction of the remaining construction costs and related demolition and professional fees of a commercial building, or major refurbishment of an existing building, every year against the rental income of landlords (or business income of another business occupying its own premises which it has built or undertaken major works on). Many industrial buildings do not have a ‘life’ of 50 years, so the Chancellor could announce an increase in the allowance to 4% per year to encourage construction of new commercial or major refurbishment of existing properties to make them suitable for current use. This, with planning reforms, could encourage the regeneration of individual properties in our high streets.
SDLT for overseas buyers of UK residential property: An additional 3% (taking the top rate to 21%) has been predicted in the press. This would be an easy tax-raising measure that would prove popular with UK buyers, although not developers that are dependent on these buyers to get up market developments, particularly flats, sold. Whatever the arguments are about properties that are needed in London and the south east, these flats need to be sold to release capital for new schemes, which could be targeted at UK buyers. If the Chancellor announces an increase in the rate payable by overseas buyers, which will be implemented from 1 April 2021, he may trigger an acceleration of the sales of these properties and encourage developers to undertake developments which target UK buyers subsequently. I hesitate to use the work ‘affordable’, but I am thinking here of properties that UK professionals can afford. I think any other changes to the SDLT regime are unlikely this year.
Affordable Housing: Although this scheme has been in place for some years, the press is talking about it as if it’s new. The scheme enables local planners to require developers of large sites to include on their site properties that are sold to locals classified as ‘eligible’ at a discount of 30% to the market price. The discount is ‘tied’ to the property and thus passed on to future buyers. While it is not a new scheme, it has not been imposed widely by planners. This is because identifying ‘local eligible buyers’ has proven to be difficult, and there have been instances where schemes have been completed by national house builders where there just aren’t enough local eligible buyers who are interested/able to buy at the discounted price. The Chancellor could improve the situation by making the group of potential buyers larger, which would make a good headline, even if the impact is limited. Other ways of increasing the number of affordable homes are likely to come through planning reform, which may be hinted at today but are not under the control of the Treasury.
One announcement I would like to see is a review of the imposition of 20% VAT on the refurbishment of existing residential properties. From 1 January 2021, the UK will be able to vary these rules, and a change like this will have a significant impact on the quality of the UK housing stock. Or even a reduction in stamp duty to stimulate the market.
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