Budget 2018: real estate implications

Chancellor Philip Hammond has delivered the 2018 Budget. What does this mean for the UK real estate market?

Housing 

The government re-iterated its commitment to fix what it calls the "broken housing market" and to raise the supply of new homes to 300,000 per year. As a result, several housing-relating measures were announced: 

• The Housing Revenue Account cap, which controlled the level of local authority borrowing for house building, has been abolished. The government claims this will allow councils to increase house building to around 10,000 homes per year. 
• The Housing Infrastructure Fund will be increased by £500 million to a total £5.5 billion. This is designed to enable up to 650,000 new homes to be built, according to government estimates. 
• The Help to Buy Equity Loan Scheme as we currently know it will be closed in March 2021. A new scheme, only available to first time buyers, will run from April 2021 until March 2023 after which there is no intention to introduce a further scheme. 

The government will also consult on reform of the planning system to facilitate upwards extensions above both residential and commercial premises and to allow commercial buildings to be replaced with residential ones.

Stamp Duty Land Tax (SDLT): extension of first time buyers relief and possible SDLT charge for non-residents

First time buyers relief will be extended to so that all buyers of shared ownership properties of up to £500,000 will benefit. This change will apply immediately and, somewhat unusually, will also be backdated to 22 November 2017 – the date of last year's budget when first time buyers relief was initially announced. Affected buyers of shared ownership properties since that date will be able to amend their SDLT returns to claim the relief. 

Additionally, the government will consult on a proposed SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland. It is expected that this would be on top of the existing SDLT surcharge on purchases of additional residential properties. 

Following on from other recent tax changes, this is another example of the government's willingness to use the fiscal system to redress a perceived imbalance between those investing in residential property and first time buyers. 

Capital gains tax reforms

The government will reform lettings relief from capital gains tax so that, from April 2020, it will only apply where the owner of the property is in shared occupation with the tenant. The exemption from chargeable gains for the final period of ownership will also be reduced from 18 months to nine months. It will, however, remain at 36 months for disabled people or those in a care home. 

The government's rationale here is to "better focus" private residence relief on owner-occupiers. This will come as a further blow to some landlords in the private rented sector, who have been affected by a steady stream of tax changes in recent years. 

Business rates

Several measures were announced in relation to business rates.  Most significantly, to support retail businesses struggling as a result of changing consumer habits, business rates bills will be cut by a third for retail properties with a rateable value up to £51,000. 

This will apply for two years from April 2019 and will be subject to state aid limits. This is part of a package of measures intended "to support a sustainable transformation of high streets".

The business rates local newspaper discount of £1,500 will continue to apply into the 2019-2020 tax year.  Public conveniences, whether owned publicly or privately, will benefit from a new 100% relief from business rates. The government will also consult on whether changes are needed to the criteria which determine whether self-catering holiday lets are subject to council tax or business rates. 

Capital allowances

The capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6%. New non-residential buildings will benefit from a 2% capital allowance known as the "structures and buildings allowance". This will apply where the construction contracts for the building are entered into on or after 29 October 2018. 

The Annual Investment Allowance will be increased from £200,000 to £1 million for all qualifying investment in plant and machinery made between 1 January 2019 and 31 December 2020. 

Environment and energy

A £10 million pilot scheme will be introduced to allow the Environment Agency to work with other stakeholders to clear some of the worst abandoned waste sites in the country. 

Enhanced Capital Allowances for companies investing in electric vehicle charge points will be extended to 31 March 2023.

Contributor: Matt Battensby