Budget 2020: Real estate and construction overview

A number of measures announced in the Budget will impact on the real estate sector.

Corporate capital loss restriction

From 1 April 2020 the Government will restrict the amount of capital gains that can be relieved by capital losses above £5m to 50 per cent. It is proposed that, following consultation, certain companies in liquidation will be excluded from the restriction. 

The loss restriction could adversely affect property companies which have traditionally benefited from brought-forward capital losses to significantly reduce taxable gains. It would be interesting to see how companies in liquidation will be excluded from this measure and whether this will be limited to companies in insolvent liquidation only.

Non-resident companies

As of 6 April 2020, companies resident outside the UK will become chargeable to UK corporation tax on their UK rental profits. These companies have previously been taxed under the UK income tax regime. 

In order to ensure a smooth transition, it is proposed that non-resident companies will be allowed a deduction for interest not previously claimed as if it were incurred on the first day it becomes chargeable to corporation tax. The amount to be brought into account will be limited to debits incurred within seven years of that date.

This is good news for companies investing in UK property that had incurred finance costs prior to starting their UK business. Such companies may be in the process of developing a property but commence their property business post 6 April 2020. This appears to also provide a tax deduction for capitalised interest (incurred in the last seven years) upon the company coming within the charge to corporation tax. Draft legislation should provide clarity on the proposed changes to the rules. 

In any case, there may be a delay in benefiting from the relief if the company’s interest expense is subject to corporate interest restriction. 

Non-UK resident Stamp Duty Land Tax (SDLT) surcharge

The government has confirmed that it will introduce a 2 per cent SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland. It had previously been announced that companies owned by non-residents would also be caught by the surcharge. 

The government has billed this as a house inflation control measure designed to help UK residents get on the property ladder. Given the housing crisis is partly a result of supply issues, it will be important to deliver on the housing investment programmes also mentioned in the Budget.

Business rate reliefs and financial help with coronavirus 

These measures may help tenants survive some difficult times, with a knock-on effect which could enable rents to continue to be paid to landlords. 

For more information please contact

Irfan Butt Irfan Butt

Partner

Adrian Benosiglio Adrian Benosiglio

Partner, Real Estate Tax