Property sector could be hit by hidden tax changes

There are a number of measures announced in the budget which affect the real estate sector. These proposals include:

Capital gains – loss restrictions

From 1 April 2020, aligning the capital loss rules with the treatment of income losses for significant capital gains. This will restrict the amount of capital gains that can be relieved by brought forward losses to 50 per cent.

An unrestricted allowance of up to £5m capital or income losses will be given, which should mean that 99 per cent of all companies are unaffected by the measure. However this is likely to be bad news for the property sector where there is reliance on brought forward losses to shelter large capital gains.

Capital gains – Entrepreneurs’ Relief

Entrepreneurs’ Relief can provide individual investors disposing of shares in dealing and development companies with a 10 per cent rate of capital gains tax.

From 6 April 2019, the holding period to qualify for Entrepreneurs’ Relief has increased from one to two years. It was feared that this relief would be either restricted or abolished and therefore the extra holding period continues to provide relief for qualifying investors.

Capital allowances

Annual investment allowances provide buinsess with 100 per cent allowances on qualifying expenditure on plant and machinery.

For a two year period commencing on 1 January 2019, the annual allowance will increase from £200,000 to £1,000,000. 

To fund this measure, from 1 April 2019, the special rate allowance will be reduced from 8 per cent to 6 per cent.

The impact of these measures will depend on the spending pattern and special rate pool of businesses in the sector.

Structures and buildings Allowances (SBA)

From 29 October 2018, expenditure on non-residential buildings will be eligible for capital allowances at a rate of 2 per cent. This measure was unexpected and should be good news for owners of new builds.

SDLT rate for non-residents

The government will consult on whether to increase SDLT by 1 per cent for non-residents buying property. Together with changes to the taxation of non-resident landlords, this measure could make it more effective for non-residents to use UK companies.

Other measures

The government has tried to address two of the main issues in the sector: lack of housing and business rates. It has announced increased expenditure on building and conversion to new home and a reduction in business rates for independent shops and other businesses on the high street with a rateable value of £51,000 or less. Time will tell as to the extent that these measures will alleviate these issues.