With many business properties across the country effectively closed since January and, in many cases, for much of the last year, it is no surprise that property taxes featured quite heavily in the Budget once again. In addition to being impacted by real estate specific taxes, many businesses which either own, develop and/or occupy real estate will be affected by wider tax changes being introduced for businesses. As significant elements of the Budget have been the subject of both formal and informal leaks over the last few weeks there were few surprises although some expected measures such as the reform of business rates and high-rise cladding levy were surprising by their omission.
As was widely expected, corporation tax rates will increase from 1 April 2023 with the current rate of 19% retained for businesses with profits up to £50,000 and a rate of 25% applying to businesses with profits exceeding £250,000. A marginal rate of 26.5% will apply to profits arising between the rate thresholds.
Capital allowances super deduction for businesses chargeable to corporation tax
Most new qualifying plant and machinery acquired from 1 April 2021 to 31 March 2023 will qualify for a super deduction from taxable profits in the period of acquisition of 130% of cost in the case of general plant and machinery and 50% of cost in the case of integral features.
Freezing of rate thresholds
Rate thresholds have been frozen for most taxes until 2026 including the income tax personal allowance and income tax rate band thresholds, capital gains tax annual exemption and inheritance tax nil rate band and so will be relevant to anyone inheriting property or realising profits or gains from property chargeable to income tax or capital gains tax (CGT). Rumoured changes to CGT rates did not materialise but there may yet be a consultation on future changes launched on “Tax day” on 23 March.
Capital allowances super deduction
Most new qualifying plant and machinery acquired from 1 April 2021 to 31 March 2023 will qualify for a super deduction from taxable profits in the period of acquisition of 130% of cost in the case of general plant and machinery and 50% of cost in the case of integral features. This will only apply to new assets and will not, therefore, apply to second hand assets such as fixtures in an existing building acquired from a third party. Leasing businesses are also excluded from entitlement to claim and so it seems unlikely that a property letting business will be able to benefit.
Stamp duty land tax
The buoyancy of the housing market in England and Northern Ireland has recently been fuelled by a temporary increase in the residential nil rate band to £500,000. Fears of an impending cliff edge on the withdrawal of this relief have been partially allayed by a phased withdrawal of the relief with the nil rate band reducing to £250,000 from 1 July 2021 until 30 September 2021 and reverting to its historic level of £125,000 from 1 October 2021.
Mortgage guarantee scheme
The Chancellor announced an intention to help ‘generation rent’ by providing mortgage guarantees for new mortgages from April 2021 up to 31 December 2022 on both new and existing properties for buyers with small deposits. Under the scheme, lenders would receive a Government guarantee to provide 95% mortgages thereby enabling first time buyers to step onto the property ladder with a deposit of only 5% of the property value up to a value of £600,000. Several major high street banks have already signed up to the scheme with more expected to follow. However, the scheme was immediately criticised by the Opposition as resembling a scheme implemented by, then Chancellor, George Osborne in 2013 which it was claimed resulted in increased house prices.
Qualifying businesses in the retail, leisure and hospitality sectors are already benefitting from 100% relief from business rates and this relief will be extended from 1 April 2021 to 30 June 2021. Thereafter, qualifying businesses will benefit from a business rates reduction of 66% for the period from 1 July 2021 through to 31 March 2022. This relief will, however, be capped at a value of £2m per business for properties that were forced to close due to COVID-19 on 5 January 2021. For qualifying businesses where the properties were not forced to close on 5 January 2021, the relief will be capped at a value of £105,000 per business. Subject to the application of the caps, therefore, this represents a discount of 75% of business rates when measured across the whole financial year to March 2022.
An extension of the relief was widely expected and is to be welcomed in the current climate. Surprisingly, however, given the recent consultation on the future of business rates, no announcement was made of proposals to replace business rates with alternatives such as online sales taxes. It is unlikely that such considerations have gone away and so are likely to resurface in the coming months.
High-rise cladding levy
A surprising omission from the Budget was any announcement in respect of the proposed levy recently unveiled by the Housing secretary, Robert Jenrick, which will seek to introduce a new tax on residential development, in particular the development of high-rise buildings. This is expected to raise at least £2bn to fund a Government commitment to help leaseholders remove unsafe cladding from their homes. Given the politically charged backdrop of the Grenfell Tower fire and ongoing public enquiry, it can be expected that further announcements on this will be made soon.
8 areas were announced as being designated as ‘freeports’ with expenditure within these areas benefitting from tax reliefs until 30 September 2026. These reliefs include:
- Reductions in SDLT for land purchases within the Freeport where the land is acquired and used in a qualifying manner
- Enhanced Structures and Building Allowances of 10% per annum
- 100% capital allowances for plant and machinery in both main and special rate pools
There are also further tax and operational advantages for businesses in these areas – read more here.
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