Out-Law / Your Daily Need-To-Know

UK Budget 2020: new capital allowances among property tax changes

Out-Law News | 12 Mar 2020 | 11:52 am | 2 min. read

The UK government made only relatively minor changes to property taxes at this year's Budget, including an increase in the structures and buildings allowance (SBA) rate and a new stamp duty land tax (SDLT) surcharge for overseas purchasers of residential property in England and Northern Ireland.

The government will also introduce a new SDLT relief on higher value property purchases in England and Northern Ireland, and relief from the UK-wide annual tax on enveloped dwellings (ATED), targeted at housing cooperatives.

Introduced as part of the 2018 Budget, the SBA was designed to encourage investment in the construction of new, or renovation of old, non-residential structures and buildings. The rate of the relief will increase from 2% to 3% with effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax, and will apply across the UK.

Businesses that were entitled to claim the SBA for structures or buildings that were brought into use after 29 October 2018 will also be able to claim at the higher rate from 1 April for corporation tax or 6 April for income tax.

Croker Richard

Richard Croker

Senior Consultant

The 50% increase in rate represents a change of direction in favour of increasing relief for real estate capital expenditure.

Property tax expert Richard Croker of Pinsent Masons, the law firm behind Out-Law, said that although this year's property tax changes were "relatively minor across the board", SBAs "may increase in importance over time".

"The 50% increase in rate represents a change of direction in favour of increasing relief for real estate capital expenditure, and there is no trade-off this time in a reduction of the rates of allowances for expenditure on plant and machinery," he said.

The government, in its Budget statement, said that the introduction of the allowance had "greatly enhanced the international competitiveness of the UK's tax system". It is anticipating that the increase will lead to over £1 billion in additional tax savings for businesses by the end of 2024-25.

The government has also further extended the enhanced allowances for investment in new plant or machinery in designated assisted areas within enterprise zones until at least 31 March 2021. These enhanced allowances, which allow businesses to write off 100% of qualifying expenditure for tax purposes, were introduced in 2012 and were initially planned to cover investment within the first five years of the area's designation.

The new 2% SDLT surcharge on the purchase of residential property in England and Northern Ireland by non-UK residents will take effect on 1 April 2021, according to the Budget document. Money raised from the surcharge will be used to help address rough sleeping. The intention behind the charge is to control house price inflation for the benefit of UK residents, the government said.

Housing cooperatives will no longer have to pay the 15% SDLT rate applicable to 'corporate bodies' on purchases of residential property valued over £500,000, with effect from the Autumn 2020 Budget. They will instead be taxed at the lower rate applicable to individuals. ATED, which applies UK-wide on purchases of property within a corporate 'wrapper', will be disapplied for housing cooperatives with effect from 1 April 2021, with a refund available for payments in respect of tax year 2020-21.

Property tax expert Richard Croker said: "Cynically, the new SDLT surcharge for non-residents may be an attempt to encourage the nascent recovery in the high end housing market since the election, by inviting foreign buyers to 'beat the SDLT increase' if they buy before April 2021".