What might the Chancellor announce in respect of the property sector?
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By Zoe Roberts a partner at BHP, who specialises on advising in all aspects of property taxation, corporate acquisitions, disposals and reorganisations.
The Chancellor will set out his second Budget of 2021 alongside the Spending Review on 27 October 2021. Whilst the economy might be recovering better than expected, there is still much uncertainty, so it remains to be seen what direction the Chancellor will take. Given a significant tax rise has already been announced in the form of the Health & Social Care Levy – has the Chancellor already played his hand, or will there be a few surprises to come?
I’ve given my crystal ball a rub and taken a look at some of the areas that may be addressed in relation to the property sector……
Tax on rental income
With Landlords avoiding the Health and Social Care levy that was announced in September to an extent as it applied only to National Insurance and dividends, not property income is there scope for this to be extended to a rise in tax on property income or even an extension of National Insurance itself to be payable?
Capital Gains Tax
A change to Capital Gains Tax rates has been in the offing for a while now but has yet to be seen. I can say with some certainty that it is unlikely that the rates will go down, but my prediction would be that they are unlikely to rise to income tax levels overnight at this Budget. Pre-announcing a tax rise will encourage sales and generate tax, whereas an overnight increase is likely to stop deals and tax revenue, so a commitment to consult on future changes or a gradual increase to bite in the future may be announced.
Green taxes are high on the agenda and in light of the upcoming COP26, announcements have already been made in this area with the Net Zero and the Heat and Buildings strategies. Whether these go far enough, remain to be seen, but I suspect there will be no further new announcements unveiled on Budget Day itself, although you can expect these now announced plans to be regurgitated on the day.
With the High Street still struggling and a move to working from home, business rates are overdue a reform. Following the Government announcement of a review and call for evidence last year, the final report of the Government’s fundamental review of business rates is expected to be published in the Autumn. It is clear the current system is out of date but to what extent the Government are ready to unveil a new system remains to be seen.
Small business rates relief for Holiday lets may be an easy target as statistics such as Cornwall’s £170m covid grants to holiday lets have hit the headlines in recent weeks and could provide some useful political capital.
New home funding
Given the significant need for new homes to be built, the Chancellor may reveal further announcements of funds to boost home building. Last year’s spending review announced the £7.1bn National Home Building Fund to be spent over four years. However, a significant part (£5.3bn) was to be used to provide finance to self-builders through the Help to Build scheme which has still yet to have any clear details or start date. Mr Sunak may take this opportunity to reannounce the headline figures and announce some detail of how builders can actually start to access these funds.
Long awaited planning reforms may be less likely to be in the speech. Whilst reforms are needed to boost home building, the new Secretary of State for Levelling Up, Housing and Communities, Michael Gove is rumoured to be having a complete rethink of the planning white paper which was announced last year, with eth aim of watering down some of the proposed relaxations.
SDLT cases have taken up more and more time in the Tribunal courts and, whilst HMRC have been winning them in the main, they may see fit to take action and tighten up some of the reliefs such as multiple dwelling relief and the exemption for Granny Annexes from the 3% surcharge.
The Pandora Papers have also highlighted the SDLT savings enjoyed by the rich and secretive on their property purchases when they acquire a company owning the property rather than the property itself. Whether or how the Chancellor would seek to tackle this remains to be seen but doing so could score brownie points with Joe Public and wouldn’t necessarily harm the general property market. Potentially it could be by a new rate of Stamp Duty on property company shares or a separate charge on the property value itself when the shares change hands, although this could get complicated unless very tailored to apply to the transactions seen as abusive.
All in all, there is scope for the Chancellor to make a few changes, so watch this space, and BHP will keep you updated as the announcements are made. Keep up to date with all the latest Budget news and tax changes that may affect your business by signing up to our monthly newsletter!