Distressed property market escapes expected hit in budget
announcement
Today's Emergency Budget announcement did not hit the property
and construction industry as hard as anticipated says leading
business and financial adviser Grant Thornton UK LLP.
The Chancellor's speech today announced the following changes
that will impact the property and construction sector:
- Capital Gains Tax (CGT) rise to 28% for higher rate taxpayers
and the increase in the limit of life time gains qualifying for
entrepreneurs' relief to £5m. This will come into effect for gains
realised after 22 June 2010.
- Capital Allowances will reduce from 20% to 18% per annum from
April 2012 for plant and machinery allowances. For special rate
expenditure (including integral features, long life assets and
thermal insulation), these allowances will go from 10% to 8% and
the reduction in the annual investment allowance will reduce to
£25,000 (from £100,000).
- VAT will increase to 20% from 17.5% from 4 January 2011,
affecting property businesses that are unable to recover all their
VAT because they make exempt supplies.
Clare Hartnell, Global Head of Property and Construction says:
"The CGT increase was the main area of concern ahead of the Budget.
I am relieved it was not as bad as anticipated and as the change
will take place at midnight tonight, it avoids the market being
flooded with properties as sellers try to take advantage of the 18%
rate.
"There is no surprise that VAT increases have been announced and
this change will hit some in the property sector hard. Both
landlords and tenants will be hit by an additional VAT cost at a
time when the sector is trying to recover.
"The increase in Entrepreneurs' relief is welcome despite the
fact it only applies to the disposal of shares in trading
businesses (including property developer-traders, fund management,
contractors and housebuilders) but not property investment of up to
£5m . This means that qualifying disposals will be eligible for the
10% capital gains tax rate.
"The reduction in the rate at which capital allowances are given
from 2012 will have a small effect on the industry. However, to get
the sector back onto its feet, the Government must introduce fiscal
measures to encourage private sector investment. I would have liked
to see the Government follow Scotland's lead and introduce Tax
Increment Financing as a means for local authorities to attract
private investment into local communities.
"The Chancellor announced a boost for owners of holiday homes
and the leisure industry in general as the Furnished Holiday
Lettings regime, due to be abolished from April 2010, will live on.
The Chancellor has announced a consultation on reforms to ensure
the regime applies equally to properties in the European Economic
Area (EEA), to increase the number of days that qualifying
properties have to be available for and let, and to change the way
loss relief is given.
"Finally, despite wide speculation, changes to 'private
residence relief' aimed at redefining the favourable CGT relief for
primary residences were not introduced. It was also surprising,
although pleasing, that there was no increase in the rate of Stamp
Duty Land Tax (SDLT). However, there will be a consultation on
changes that may be needed to tackle SDLT avoidance on high value
transactions."
Foot note
Furnished holiday lettings
Furnished holiday lettings have some tax advantages over other
property lettings including:
- Entitlement to plant and machinery capital allowances on
furniture, furnishings, etc in the let property, as well as on
plant and machinery used outside the property eg vans and tools
(but no capital allowances for the cost of the property itself or
the land on which it stands)
- Losses can be set against total income and are not restricted
to the rental business income
- CGT reliefs for traders such as rollover relief and importantly
entrepreneurs' relief
Furnished Holiday Lettings must meet the following availability
tests in order to qualify to be taxed under the regime
- The availability condition is that, during the
relevant period, the accommodation is available for commercial
letting as holiday accommodation to the public generally for at
least 140 days.
- The letting condition is that, during the
relevant period, the accommodation is commercially let as holiday
accommodation to members of the public for at least 70 days.
- The pattern of occupation condition is that,
during the relevant period, not more than 155 days fall during
periods of longer-term occupation.
ENDS
For further information please contact:
Clare Hartnell on 0207 728 2388, 07855430798 or
clare.hartnell@gtuk.com
Nicola Daley at Grant Thornton press office on 020 7728 2244 or
Nicola.daley@gtuk.com
Notes to Editors:
Live Webinar
We will be running a live interactive internet seminar (webinar)
at 4.00pm on June 24, with a panel of experts who will be
commenting on what the announcement means for the UK economy, taxes
and the public sector. Viewers will be able to email questions in
to the live discussion.