Autumn Budget 2021 – real estate and construction

Following on from the Chancellor’s autumn budget statement, the Finance (No.2) Bill has now been released and consists of 194 pages. The key measures which are worth noting for the property section include:

Capital gains – sale of UK residential property

  • The time limit to report and pay CGT after selling UK residential property for UK residents will increase from 30 days after completion to 60 days. This also applies to the sale of UK property by non-UK residents. The extended deadline will have effect for disposals that complete on or after 27 October 2021.
  • For UK residents selling a mixed-use property, only the portion of the gain that is the residential property gain is to be reported and paid within the 60-day window.

Personal taxes

  • The capital gains tax annual exempt amount is maintained at £12,300 for individuals. There was no increase in the CGT rate.
  • Increases in the taxation of dividends by 1.25 per cent. Highest rate will be 39.35 per cent.

Residential Property Developer Tax (RPDT)

  • The tax will take effect from 1 April 2022 onward.
  • A rate of 4 per cent will apply on annual profits exceeding £25m (on a group-wide basis).
  • Profits are calculated without a deduction for finance costs.
  • The RPDT profits and related tax will be included in the corporation tax returns for the companies liable to RPDT.
  • Buy-to-rent investors and non-profit affordable housing providers will be outside the RPDT’s scope.
  • The tax is intended to generate £2bn over a period of 10 years although the Bill does not include a sunset date. There is therefore a concern that the tax will, if it raises significant tax, be, like income tax, maintained indefinitely or extended to those less profitable companies will profits below £25m.
  • At 4 per cent, any developer which caught, will pay tax at a rate of at least 29 per cent from 2023, and the effective rate may be considerably higher, given finance costs are not available as a deduction in calculating RPDT profits.

Capital allowances

The temporary increase in the annual investment allowance (AIA) limit to £1m is extended to 31 March 2023. It will reduce to £200,000 from 1 April 2023.

Business rates

A 50 per cent business rate relief is to be provided for retail, hospitality and leisure properties in England, up to a maximum of £110,000.

Real Estate Investment Trusts (REIT)

  • Changes are to be introduced to remove constraints and administrative burdens which are no longer necessary.
  • Shares need not be admitted to trading on a recognised stock exchange, where at least 70 per cent (previously announced as 99 per cent) of the shares are owned by one or more institutional investors.

Asset Holding Companies regime (AHCs)

  • The AHCs regime takes effect from 1 April 2022 and is a real game changer for the UK as a holding company location. It permits a wide range of investors (including institutional investors) to use holding companies by investing via onshore structures. The AHC regime is most attractive to real estate fund managers who are headquartered in the UK but running pan-European or global real estate funds.
  • The regime is unavailable for UK property investments but there is an existing range of tax-efficient structures already available to investors. The introduction of the regime certainly makes the UK an attractive holding company jurisdiction, thereby strengthening and creating more jobs in the funds and financial services sectors.
  • Key features of the regime include exemption from capital gains on the sale of certain shares and overseas property, and interest deductions for profit participating loans. In addition, no withholding tax is to apply on interest payments by AHCs, which puts the UK on par with other jurisdictions that don’t apply withholding tax on interest payments under domestic law eg Luxembourg.

Re-domiciliation regime

HMRC has announced a consultation to make it possible for companies to move their domicile to the UK by enabling the re-domiciliation of companies. The consultation closes on 7 January 2022.

Final thought

The current finance bill is 194 pages and is the second finance bill to be released this year. It introduces a new property taxes, RPDT and which is the 21st new tax in the last 21 years and means that developers paying this tax will have a tax rate of more than 29 per cent on their profits. Compare this with the Bank Levy, another one of those 21 new taxes, which will be reduced from 8 per cent to 3 per cent resulting on a 28 per cent tax rates on banking profits. Will these new higher rates impact on the viability of some development projects and reduce the number of homes being built?

For more information, please get in touch with Adrian Benosiglio, Irfan Butt or your usual RSM contact. 

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