|The first autumn Budget saw some major announcements for the UK property sector.
The much publicised UK housing shortage received major attention. A raft of government interventions were announced on future funding and planning, in an attempt to address the housing crisis. There is significant detail to be digested on these measures, and on some major tax changes that take immediate or imminent effect:
Taxation of capital gains made by non-residents on commercial property from April 2019
Non-UK resident funds, companies and individuals investing in commercial property in the UK will pay tax on gains on increases in value from 1 April 2019. The limited exemptions currently available on gains made by non-UK residents on the disposal of UK residential property will also be largely removed.
Property values will be rebased to shelter gains made up to April 2019. If the original price is greater than the April 2019 value, there will be an option to use this as the ‘base value’ for tax purposes.
KS comment: This is massive news for the commercial property sector. Much UK commercial property is held offshore, with gains not currently subject to UK tax.
The new rules will lead to a significant change in holding structures and the market generally. Offshore funds and other overseas owners of UK properties will need to seek immediate advice on how these changes will impact on their future tax liabilities and the returns to their investors and shareholders.
SDLT relief for first-time buyers
Bowing to pressure, the Chancellor has announced an exemption from SDLT for first-time buyers. No SDLT will be payable on properties priced up to £300,000, with a reduction in rates for properties costing between £300,000 and £500,000. Above £500,000 the calculation of SDLT will revert to current rules on the entire consideration.
KS comment: This will be welcomed, and is worth £5,000 to qualifying first-time buyers. The sting in the tail however is the £500,000 limit after which SDLT calculation reverts to the current system – for a qualifying property priced at £500,001 the £5,000 saving is fully and immediately lost. In London particularly, there are plenty of first-time buyers who will spend more than £500,000 and therefore not benefit.
Removal of Indexation Allowance from January 2018
Companies selling a property can currently reduce the gain chargeable to tax by claiming indexation allowance up to the date of sale. These claims will be frozen from December 2017, meaning that the tax liabilities of companies will increase in the future – the exchequer forecasts an increase in tax revenues of £165 million in 2018-19, and additional taxes of £525 million in 2022-23.
KS comment: Companies owning properties which are surplus to requirements will be assessing their total investment returns, net of tax, and reviewing their investment strategies. This measure might release properties into the market, triggering opportunities for investors with funds.
The Kingston Smith Autumn Budget 2017 team:
|Kingston Smith LLP
Chartered Accountants and Business Advisers
Devonshire House, 60 Goswell Road, London EC1M 7AD
020 7566 4000 www.ks.co.uk