As the 2018 growth forecast is upgraded from 1.3% to 1.6%, a number of the proposed measures in the Budget 2018 will impact the construction and property sector.
Annual Investment Allowance (AIA)
The Chancellor announced a significant, although temporary, increase in the amount of the AIA from the current £200,000 to £1,000,000. This increase will take effect for expenditure incurred from 1st January 2019 to 31st December 2020.
This is a welcome increase, but is a return to the roller coaster of fluctuating AIA rates (between £50,000 and £500,000) that was experienced between 2008 and 2016. Once again, this will require tax payers and their advisors to get to grips with the surprisingly complex transitional rules that are required where chargeable periods span the changes.
That said, many more businesses will see the real value of their associated tax savings improve by 100%.
Structures and Buildings Allowance (SBA)
Just when Industrial Buildings Allowance becomes a distant memory, the Chancellor has decided to resurrect it in the form of the new SBA.
The SBA will provide both corporation tax and income tax payers with an allowance of 2% on a straight line basis against the original construction expenditure incurred on buildings and structures, provided that they are not used wholly or mainly as dwellings.
The possibility of introducing a new relief on buildings and structures was discussed in the recent consultation on capital allowances but it is a surprise that the Government has moved ahead with this measure so soon. It will in fact be available for eligible expenditure under new contracts with immediate effect (29th October 2018) even though HMRC recognises that further consultation will be required in a number of areas before legislation can be introduced. Particular issues to be finalised include the precise definition of residential use, the cut off point for treating the grant of a lease as a sale of the property and the practical implications of temporary disuse.
Capital Allowances – Special Rate Reduction
Making the Special Rate even less special than it was before, the Chancellor announced that the rate will reduce from 8% per annum reducing balance basis to 6% per annum. The Special Rate applies to a number of asset classes including Integral Features (water installations, certain mechanical & electrical services and lifts) and thermal insulation added to existing commercial buildings.
Whilst a reduction in rates is never good news, for those in the property sector it is worth noting that the new SBA will offset this and based on the Treasury’s impact assessment, there should be a net gain to the taxpayer.
Enhanced Capital Allowances
Whilst the budget brought the generally anticipated announcement of an update to the energy and water technology lists, it also announced that this tax relief will be withdrawn from April 2020. The savings gained by this change will be reinvested in an Industrial Energy Transformation Fund, to support significant energy users in cutting their energy bills and transition UK industry to a low carbon future.
We believe this is an unwelcome and unexpected change to a measure that has seen a continually increasing amount of take-up since it was introduced 17 years ago. It would also seem counterproductive not to have replaced this relief with something else bearing in mind the Government’s stated commitment to sustainability.
100% First Year Allowances for Electric Vehicle Charge Points
The Government first introduced this measure in 2016 but the relief was due to end in April 2019. This allowance will now be extended for companies investing in electric vehicle charge points to 31st March 2023.
Clarification on Tax Relief for Altering Land
It would appear that a number of businesses had been legally stretching the limits of the capital allowances legislation in order to claim relief on the cost of altering land, in circumstances that were never intended.
The Government has therefore sought to adjust the legislation to ensure any such relief is only available for land alterations directly associated with the installation of plant & machinery, which itself qualifies for capital allowances. Alterations associated with anything else are now specifically excluded (unless other specific provisions exist – see capital allowances on buildings and structures).
This will apply to any claims made after 29th October 2018.
Non-UK Resident Landlord Companies – Corporation Tax
Non-UK Resident Landlord companies with UK property income will, from 6th April 2020, be charged Corporation Tax rather than Income Tax. This is intended to level the playing field between onshore and offshore companies and will apply whether the investment is direct or indirect, say via a partnership. It is estimated that 22,000 company landlords will be affected.
A benefit will be the ability for these companies to now claim the 150% Land Remediation Relief, whether that is in the form of tax savings or a payable tax credit. This has only ever been available to corporation tax payers and is a specific relief targeted at remediating contaminated sites and buildings they acquire.
Unfortunately, as enhanced capital allowances are being abolished on the same day as this is introduced, the previously unavailable tax credit associated with this incentive will remain out of reach.
The VAT threshold will be maintained at the current level of £85,000 for a further two years until April 2022. The deregistration limit also remains unchanged at £83,000.
VAT – Reverse Charge?
Following consultation started in 2017, the Chancellor has moved a step closer to introducing a new reverse charge mechanism aimed at addressing perceived VAT fraud in the construction industry. At this stage this measure only paves the way for new legislation to be introduced at a later date. However, the current information suggests that future VAT payments will be kept away from sub-contractors and only fully administered by the main contractor. If a reverse charge mechanism of this nature is introduced, it is also likely to have an impact on the Construction Industry Scheme.
We hope that changes in this area will take into account any negative cashflow impact that may be suffered.
SDLT – Improvements for Shared Ownership
The Chancellor announced the extension of stamp duty relief for first-time buyers so that all qualifying shared ownership property purchasers can benefit. This change will apply to relevant transactions with an effective date on or after 29th October 2018, and will also be backdated to 22nd November 2017 so that those eligible will be able to claim a refund.
Aggregates Levy Rates
The Government announced that they would freeze Aggregates Levy rates for 2019-20, but intends to return the Levy to index-linking in future. The current rate is £2/tonne and it seems like it has been this amount forever.
Landfill Tax Rates
Starting from 1st April 2019, the standard rate will increase from £88.95/tonne to £91.35/tonne and the lower rate will increase from £2.80/tonne to £2.90/tonne.
High Street Initiatives
The Government will launch a new Future High Streets Fund with £675 million to support local areas and to improve access to high streets and town centres. Local areas are to provide proposals setting out their overall vision but the Government is expecting the Fund to contribute up to £25 million per area.
In addition, to provide upfront support through the business rates system, the Government is cutting bills by one-third for retail properties with a rateable value below £51,000, benefiting up to 90% of retail properties, for two years from April 2019, subject to state aid limits.
This budget summary has been prepared from the Chancellor's Budget speech and supporting documentation. Budget proposals are subject to amendments during the course of the Finance Bill through Parliament. We have made every effort to ensure the accuracy of this publication but you should always obtain professional guidance before acting or refraining from any action as a result of its contents.
If you have any questions about this report, please contact Jared Carver, Chris Ranson or Neil Swarbrigg