Construction and Property Highlights
Whilst the effects of COVID-19 had a significant impact on the new Chancellor’s first post-Brexit Budget, a common theme remained the levelling up of the UK economy. Here we review some of the more important tax and spending plans that will affect the construction and property sectors.
Structures and Buildings Allowance (SBA)
Although SBA’s were first announced in Budget 2018, it is only now that we are seeing the first significant claims being submitted to HMRC. The Chancellor may therefore have seen it as an area to exploit for an easy headline by increasing the annual rate from 2% per annum (for 50 years) to 3% per annum (for presumably a still not insignificant 33 years).
On the face of it, these can be seen as a worthwhile addition to the potential tax reliefs available to those incurring expenditure on non-residential property, whether that be through the new construction, extension, refurbishment, fit out or acquisition of buildings. However, there is a sting in the tail, as property investors will experience a clawback of any relief on disposal and tenants are only likely to be able to keep the part of the benefit realised up to the end of their lease.
Even with this increase, it is unlikely that this allowance will actually influence investment decisions. Indeed, the complexities associated with capturing / tracking qualifying expenditure may actually dissuade people from claiming. That said it does provide a level of (mostly temporary) relief on otherwise unrelieved capital expenditure and looks to be here for a long long time.
Annual Investment Allowance (AIA)
The temporary increase in the amount of the AIA to £1,000,000 is being maintained up to the 31st December 2020, at which point it is scheduled to reduce back to £200,000.
The increase has proved to be a significant boost to small and medium sized businesses, encouraging new tax efficient investment on property assets. With the real value of the associated tax savings potentially doubling, it had been hoped that the opportunity would be taken to extend the period of the increase.
There is still time for a change, but at this point it has to be assumed that more tax relief will be available to capital intensive businesses this year than next.
Enhanced Capital Allowances
As expected, this tax relief targeted at energy and water efficient technologies in buildings, will be withdrawn from April 2020. We believe this is an unwelcome change to a measure that has seen a continually increasing amount of take-up since it was introduced 19 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
Whilst the main enhanced capital allowances category is to be withdrawn from April 2020, this allowance, which was first introduced by the Government in 2016, will remain for investments in electric vehicle charge points to 31 March 2023.
Non-UK Resident Landlord Companies – Corporation Tax
As previously announced, from 6 April 2020 non-UK Resident companies with UK property income will be charged Corporation Tax rather than Income Tax. This measure is intended to provide parity between onshore and offshore companies. It is estimated that around 22,000 company landlords will be affected as it will apply whether the investment is direct or indirect, say via a partnership.
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 that they acquire.
VAT – Reverse Charge
In 2018 the Chancellor paved the way for legislation to introduce a reverse charge mechanism aimed at addressing perceived VAT fraud in the construction industry. It will mean that VAT payments will effectively be kept away from sub-contractors and only fully administered by the ‘main’ contractor.
This measure was due to commence in October 2019, however after considerable lobbying from various trade bodies with concerns over the industry’s preparedness, its introduction was delayed until 1st October 2020. It would appear that it is still the Government’s intention to move forward on this timeline.
Time will tell whether this will have longer term cashflow implications on sub-contractors within the supply chain.
Aggregates Levy Rates
As has been the case for a number of years, the Government announced that they would freeze Aggregates Levy rates for 2020-21 at £2/tonne. It would seem that the long-term intention to return the Levy to index-linking will take some time.
Landfill Tax Rates
In line with announcements made by the Chancellor in the 2018 Budget, starting from 1st April 2020 the standard rate is expected to increase from £91.35/tonne to £94.15/tonne and the lower rate from £2.90/tonne to £3/tonne.
Investing in Infrastructure
As part of its plans to level up the UK and get Britain building, the Government announced the following funding measures:
- Publication of a National Infrastructure Strategy later in the spring.
- Investment in English strategic roads, with over £27 billion between 2020 and 2025, enough funding to fill in around 50 million potholes across the country.
- Investment in urban transport of £4.2 billion for five-year, integrated transport settlements for eight city regions.
- Investment of £1 billion allocated to shovel-ready transport schemes.
- Funding of £5.2 billion for flood defences between 2021 and 2027.
- A £10.9 billion increase in housing investment to support the commitment to build at least 1 million new homes by the end of the Parliament, and an average of 300,000 homes a year by the mid-2020s.
- Investment of £1.5 billion over five years in capital spending to refurbish further education colleges.
- Additional investment of £1 billion to remove unsafe cladding from private and public high-rise residential buildings.
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.