There were few surprises in the Budget, but some announcements and recent policy changes hit property developers and investors the hardest.
Buy-to-let landlords will soon start to feel the pinch associated with interest relief restrictions on residential property lets which are being phased in over 4 years from April 2017. These changes will push many more taxpayers into higher rates of tax, losing child benefit or personal allowances. Many property owners are now assessing the impact of this on their portfolio and the options open to them.
Many landlords will have felt a sigh of relief that the ‘making tax digital’ requirement to report quarterly has been delayed by one year to 2018/19.
From April 2017 most unincorporated businesses will be able to calculate their profits using a cash basis – indeed this will become the default basis unless you opt to use ‘Generally Accepted Accounting Principles’ (GAAP). For most, this will mean bringing forward recognition of expenditure to an earlier period which is good news.
The initial cost of items used in a dwelling house will also not be an allowable expense under the cash basis. The existing ‘replacement of domestic items relief’ will continue to be available for the replacement of these items when the expenditure is paid. Interest expense will be treated consistently between those using either basis.
Some temporary good news was introduced for those purchasing property or dealing with the associated filing of stamp duty land tax (SDLT) forms. It was previously announced at the 2015 Autumn Statement that the filing and payment window would be 30 days to 14 days starting in 2017/18. A one year delay in this change has been announced, so tighter timescales only hit from 2018/19.
A couple of announcements have been made which impact on property developers:
- Offshore property developers – there will be changes to the legislation to ensure that all profits realised by offshore property developers developing land in the UK, including those on pre-existing contracts, are subject to tax from 8 March 2017. The transactions in land rules introduced in July 2016 did not catch some contracts which included artificial delays in transactions. The transactions in land rules can also impact on others owning land or property in companies where a sale of shares may not be treated as capital. Intention is key in how the transaction would be taxed.
- Changes will be made to remove the ability of businesses with loss-making capital assets (such as land and property) obtaining an unfair advantage by converting those losses into more flexible trading losses. The election to holdover into a development asset will only be available where the property is sat at a gain on appropriation.
Property developers will benefit from the reduction in corporation tax rates to 19% from April 2017 and further reduction of 17% from 2020. Care to structure deals should be taken if developers wish to benefit from 10% tax rates on exit or reinvest funds into future property developments to ensure opportunities are not missed.
Some announcements were also made in relation to business rates to assist with the increases due to new rateable values which will impact from April 2017. However, these measures may be too little, too late for some businesses struggling with high building and maintenance costs, alongside increasing employment costs and uncertainty of workforce due to Brexit plans.