Budget 2008 Property Report

“A responsible Budget that will secure stability in these times of global economic uncertainty” claims the Chancellor. “A boring Budget” cry others. Either way, whatever you are planning to celebrate this year, the bubbly will be more expensive

For property owners and developers the Budget does not offer very much to get excited about but neither should it make them quake in their boots. The Chancellor made it clear that new homes need to be built and that land will be made available for this. He spoke of the identification of surplus central government land which could be used for up to 70,000 homes. Where this land is, is an unanswered question so far.

To help with the increase in housing numbers, the Government has looked at incentives for building on brownfield land. Following consultation the Government has announced that tax incentives will be reformed. The landfill tax exemption for waste from the clean up of contaminated sites will be phased out from April 2012 but from 1 April 2009, land remediation relief will be extended to expenditure on derelict land and the cost of removing Japanese knotweed by treatment.

In another attempt to assist with the provision of more homes, the Government is considering extending the VAT reduction to the renovation and refurbishment of other residential properties as well as those which have been vacant for more than 2 years.

The bar is definitely being raised when looking at the quality of new housing and there have been many new initiatives recently which may make the construction industry feel that it is being strangled by red tape. These include the Lifetimes Homes Standard and the zero-carbon initiative for all new houses by 2016. The 2008 Budget has now widened this initiative to include all new-build flats as well. However, with the demands come some relief as SDLT is exempt on zero-carbon houses and flats acquired between 1 October 2007 and 30 September 2012. The Government are also looking to introduce the zero-carbon initiative for non-residential properties by 2019. Whether they will also receive SDLT relief is not known.

Looking at SDLT more generally, there are no major changes. The rates and thresholds remain the same with the only changes being the threshold on the annual rent of leasehold properties where a premium is also paid on acquisition. For residential leases SDLT will only be calculated on the premium and for non-residential, the threshold for the annual rent is increased from £600 to £1000.

In line with the Chancellor’s “cautious” approach, SDLT avoidance has been tackled. Changes to the group relief provisions mean that companies will have to be careful when transferring between group companies. If the vendor company leaves the group and then within three years of acquiring the asset there is a change in the control of the purchaser company group there can be a clawback of SDLT relief. Previously it was only if the purchaser left the group. Now the purchaser will be treated has having left the group first even if it was the vendor in real time. This measure relates to transactions taking place on or after 13 March 2008 or earlier if there is a change in the control of the purchaser within the three year limit (except where the change is pursuant to a contract exchanged prior to 13 March 2008).

The purchase of property by way of acquiring an SPV has also been looked at. Now as well having to notify HMRC of a purchase of an SPV owning non-residential property to the value of more than £5million, the Government will pass legislation later in 2008 concerning notification where the SPV owns residential property worth £1million or more.

In relation to property investment partnerships the rules have been softened so that transfers of property within an investment partnership will not be liable to SDLT. Transfers in and out will continue to be chargeable. The changes are retrospective from 19 July 2007. The main concern currently is the lack of clarification as to exactly what transactions are covered.

And what about other taxes relating to buildings? The Government is proposing changes to the legislation relating to options to tax. The proposals are aimed at simplifying the legislation and improving the administration of the scheme. The amendments include options within VAT groups, options relating to buildings and land acquired for residential use, a “cooling-off” period, late applications and automatic lapsing of an option after the interest in the building has ceased more than six years previously. These changes are due to take place from 1 June 2008 and more information is to follow soon.

There are some significant changes to capital allowances, which on the whole mean a smaller claim. The main Writing Down Allowance (WDA) is to be reduced from 25% to 20%. This will affect businesses within the charge for corporation tax from 1 April 2008 and those within the charge for income tax from 6 April 2008.

A new WDA for “integral features” of 10% comes into effect on the dates mentioned above. “Integral features” include: electrical systems; cold water supply systems; heating systems; ventilation systems; lifts, escalators and moving walkways, external solar shading; and active facades. Anything already within the building which is an integral feature will remain within the main WDA of 20% but those which are not currently eligible or are new or replacement installations will come within this special rate pool. Thermal installation will become an “integral feature” except for residential properties.

There is also the introduction of a new Annual Investment Allowance for the first £50,000 spent on plant and machinery which gives 100% write-off against profits. This new allowance is meant to complement and not replace any of the existing 100% first year allowances. The allowance is to replace the current First Year Allowance for Small and Medium Sized Enterprises and is available to most businesses.

As mentioned in previous Treasury reports Industrial Buildings Allowances and Agricultural Building Allowances are being phased out between April 2008 and 31 March 2011. Transitional measures are in place.

So what now? Many of the measures in the Budget are subject to further legislation and therefore, it will be after the summer before the full effect can be determined. In the meantime, look out for signs on land “All sale enquiries to Mr Brown”.

Anja Cook, Solicitor

Tuesday 18th March 2008