A number of measures will impact on the property sector
Capital gains - indexation allowances
Indexation allowances provide companies with a tax free uplift to the costs incurred in acquiring and holding an investment property to take account of inflation. This allowance will be frozen on 1 January 2018.
For property companies, which typically hold their assets for a number of years, this is likely to significantly increase their tax liabilities.
Indexation allowances up to January 2018 will not be lost.
The measure is expected to cost companies over £1.7bn over the next five years.
Capital gains – non-residents
A consultation paper has been been published that considers taxing non-residents on gains realised on the disposal of commercial properties from April 2019.
The proposal would also tax gains on UK residential properties held by offshore companies with a large number of shareholders. These companies are currently exempt from the non-residents capital gains tax charge.
Properties will be rebased at their April 2019 value if owned at that point.
Although these measures have been anticipated for some time, they will impact on the attractiveness of UK property investment at a time when investment in the UK is badly needed.
It is also proposed that gains on the disposal of shares in property rich companies will be taxed. This could reduce the attractiveness of corporate transactions and raise issues as to the availability of double tax treaty relief to avoid a tax charge.
It is to be hoped that the inheritance tax measure recently introduced for residential property investment is not extended to shares in structures holding commercial property.
Stamp duty land tax (SDLT)
The SDLT filing and payment window on residential properties is to be reduced from 30 days to 14 days for transactions taking place after 1 March 2019. Given lawyers typically hold monies on completion to pay these liabilities, this measure may not impact too much on purchasers.
Further relief from business rates for SMEs has been announced, including revaluations every three years, relief for pubs, and linking rises to CPI rather than RPI from April 2018.
Non-resident landlords (NRL)
From April 2020, rent receivable by non-resident companies will be subject to corporation tax rather than income tax. Although the rate of tax will by reduced, the corporation tax regime is more complex and, given interest restrictions, could result in higher tax charges.
This measure could result in investments in the UK becoming less viable, both from a commercial viewpoint and due to the need to navigate through increased regulation.
Financial support for house building will increase to at least £44bn over the next five years. The government has committed to building 300,000 each year. Measures will be introduced to release land with planning permission. Property developers will come under more pressure and should monitor the details of this measure.