UPDATE [19/10/2022]
Yesterday’s (Tuesday 18 October 2022) emergency fiscal statement by Jeremy Hunt, the Chancellor of the Exchequer, cancelled a number of tax-cutting measures announced by his predecessor, Kwasi Kwarteng, on 23 September – including a reversal of decisions
- to abolish the higher 45% rate of income tax;
- to reduce the basic rate of income tax by 1% to 19%; and
- to reduce the rate of corporation tax from 25% to 19%.
Of interest specifically to the real estate sector is the news that the reduction in SDLT costs on residential purchases will remain in place as originally announced – as will the decision to maintain the Annual Investment Allowance at £1 million (it was due to be reduced to £200,000 from Friday 31 March 2023). There was no definitive word on the fate of Investment Zones.
We await more news on this and other tax-and-spending measures on 31 October. This is the new date for publication of the medium term fiscal plan (alongside the OBR forecast), brought forward from Wednesday 23 November.
[Published 23/09/2022]
New Chancellor Kwasi Kwarteng delivered his first ‘fiscal statement’ as Chancellor of the Exchequer today.
Badged as a new Growth Plan with “the biggest tax cuts in generations”, the statement contained some previously telegraphed announcements (e.g., changes to residential SDLT and the cancellation of the increase in the rate of corporation tax to 25% in 2023/4) with some unexpected ones (reduction in the basic rate of income tax to 19% from April 2023 and abolition of the additional rate of income tax).
Key points for the real estate market are:
- Investment zones: There isn’t a lot of detail on this yet, but these new zones look very similar to the current Freeport offering. Highlights include:
- The Government is in talks with 38 local authorities and mayoralties (including the West Midlands Combined Authority, Bedford Borough Council and Essex and Kent County Councils) about the creation of new ‘Investment Zones’ offering time-limited and specific tax concessions.
- The detail of this new scheme, including the geographical scope of the new zones, is not yet confirmed. The tax advantages, however, appear to be broadly the same as those currently on offer in Freeport tax sites, namely:
- 100% relief from SDLT for qualifying acquisitions of commercial land and land for new residential development within Investment Zones (NB: the inclusion of acquisitions of land for residential development differs from the Freeport regime);
- Accelerated structures and buildings allowance providing relief over 10 years;
- 100% capital allowances on qualifying plant & machinery; and
- ‘liberalised’ planning rules within the zones.
- SDLT for residential property:
- The government has announced that it is doubling the 0% rate threshold for residential property from £125,000 to £250,000, and by consequence removing the 2% threshold. The 5% threshold will continue to apply to chargeable consideration in excess of £250,000, and the remaining thresholds are also unaffected.
- For companies and those persons subject to the 3% surcharge rules, this will seemingly mean that the 3% rate threshold is extended to £250,000, and the 5% threshold is being removed. The 8% threshold continues to apply to chargeable consideration in excess of £250,000 and the remaining surcharge thresholds are also unaffected.
- First time buyer’s relief:
- The government has also announced that it is increasing the 0% rate threshold first-time buyers claiming ‘first time buyer’s relief’ on the acquisition of residential property from £300,000 to £425,000.
- The threshold for eligible acquisitions will also be increased such that the relief will now be available in relation to acquisitions of property costing less than £625,000 (an increase from a threshold of not more than £500,000).
- The rules for non-residential property are seemingly unaffected.
- Capital allowances: annual investment allowance – this was due to be reduced significantly in 2023/4 but is to be maintained “permanently” at £1 million.
As is always the case with fiscal policy, the detail will trickle out over the coming days and weeks. Please speak to your usual Gowling WLG contacts if you are concerned about the implications for current or proposed transactions.
About the author(s)
Lee Nuttall is the leader of Gowling WLG UK's national Tax Group. The UK Tax Group is described by Legal 500 as a "first-rate and user-friendly team".
As a principal associate in the tax team, Michael Sweeney has a breadth of experience advising clients on various types of direct and indirect taxes, including VAT, stamp taxes and other commercial and employment related taxes.
Michael is an associate in Gowling WLG's tax team, based in Birmingham. He assists with advice on a range of tax matters, including in relation to real estate and corporate transactions, as well as employment taxes.
