Real Estate

Key points

On 15 March 2023, the UK Chancellor Jeremy Hunt delivered his Spring Budget which struck a slightly more optimistic note than the relatively sombre Autumn Statement a few months ago.

By way of reminder, corporation tax rates remain due to increase to up to 25% as of April 2023 and the planned end to the super-deduction on 31 March 2023 will go ahead.

Very little has changed in relation to UK real estate taxes. However, the following should be noted:

Capital allowances – “full expensing”

To help offset the increase in corporation tax bills as a result of the rising corporation tax rate, the government has announced “full expensing” in the year of investment for certain capital expenditure.

For an initial 3 year period, beginning on 1 April 2023, investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets (ie those assets which currently benefit from an annual 18% writing-down allowance).

Companies investing in special rate assets will also benefit from a 50% first-year allowance in the year of investment with the remaining expenditure continued to be written-down on an annual basis at 6%.

Investment zones

The government is launching a refocused investment zones programme to catalyse 12 high-potential knowledge-intensive growth clusters across the UK. The aim is to drive growth in key future sectors - being green industries, digital technologies, life sciences, creative industries and advanced manufacturing. Each English investment zone will have access to interventions worth GBP80 million over 5 years.

Given the sector focus, it may be that tax incentives are more targeted in these areas, and we question whether SDLT relief will still apply for purchases of land or buildings for new residential development within these zones.

REITs

As announced in December, amendments will be made to the REIT regime to enhance its competitiveness. Changes include removing the requirement for a REIT to hold a minimum of 3 properties where it holds a single commercial property worth at least GBP20 million, and reducing administrative burdens for certain partnership investors.

The Chancellor has also announced amendments to the “genuine diversity of ownership” condition in the REIT rules (as well as in the rules for Qualifying Asset Holding Company Regime (“QAHC”) and non-resident capital gains tax). The changes are intended to allow fund structures involving multiple pooling vehicles to satisfy the condition, and be able to potentially benefit from the REIT and QAHC regimes - even if the individual entity would not satisfy the condition when considered in isolation.

Sovereign immunity

Readers will remember that on 4 July 2022, the UK government launched a consultation on the UK’s regime for sovereign immunity from UK direct taxation. The UK government’s proposals were to dramatically curtail the existing immunity from UK tax as it applies to sovereign investors (other than with respect to income tax on passive interest income).

The good news is that the consultation proposal on sovereign immunity has now been dropped, no further action is to be taken, and sovereign investors (with the benefit of immunity) will continue to benefit from exemption on all direct UK tax.

Pension changes

For individuals, today’s announcement brings a welcome change to pension tax. From 6 April 2023, the annual allowance (ie the amount that individuals can contribute to their pension tax-free each year) will be increased to GBP60,000 and the lifetime allowance charge will be removed, before if it is fully abolished in a future Finance Bill.

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Should you have any queries on the Spring Budget, please reach out to your usual UK tax contact or one of the above authors.