UK Spring Budget 2021 – Real Estate
The key themes of the Spring Budget delivered by Rishi Sunak were job protection and economic recovery from COVID-19. Whilst the majority of the tax changes were expected, the Chancellor made a couple of surprise announcements that will be relevant to the Real Estate sector.
Temporary super-deduction for expenditure on new plant and machinery
From 1 April 2021 to 31 March 2023, companies investing in new plant and machinery will be able to claim:
- a 130% super-deduction for expenditure on most new plant and machinery that would ordinarily qualify for 18% capital allowances (main pool); and
- a 50% first-year allowance for most new plant and machinery that would ordinarily qualify for 6% capital allowances (special rate pool).
The super-deduction means that, if a business spends GBP100 on new plant and machinery, it can claim a deduction as if it spent GBP130, with the aim of encouraging firms to make investments to enhance economic recovery.
Expenditure incurred on contracts entered into before 3 March 2021 will not qualify for the enhanced allowances.
Extension of increase to SDLT nil-rate band for residential property
The temporary increase of the stamp duty land tax (SDLT) nil-rate band for residential property to GBP500,000, which was due to fall back to GBP125,000 on 31 March 2021, will be extended until 30 June 2021. From 1 July to 30 September 2021, it will drop to GBP250,000, and then to the previous threshold of GBP125,000 from 1 October 2021.
This extension only applies to SDLT (England and Northern Ireland). Similar increases in the nil-rate bands for Land Transaction Tax (Wales) and Land and Buildings Transaction Tax (Scotland) to GBP250,000 were introduced last year and are due to end on 31 March 2021.
Increase in corporation tax rate to 25% from April 2023
From April 2023, the corporation tax rate will increase to 25% (from the current rate of 19%). The 19% rate will continue to apply to companies with profits of GBP50,000 or less, and a tapered rate will be introduced for profits above GBP50,000, so that only companies with profits of GBP250,000 or greater will be taxed at the full 25% rate.
Extension of VAT and business rate cuts for hospitality, retail and leisure sectors
VAT on supplies of accommodation (such as hotels, B&Bs, campsites and caravan sites), admission to attractions (including cinemas, theme parks and zoos) and food and non-alcoholic drinks served by restaurants, cafes and pubs, will remain at 5% until 30 September 2021. This will be followed by a new reduced rate of 12.5% applying between 1 October 2021 and 31 March 2022, before reverting to the standard rate of 20%.
The business rates 'holiday' for hospitality, retail and leisure businesses (including shops, restaurants, cinemas, hotels/B&Bs, sports clubs and gyms) will be extended for a further 3 months to 30 June 2021, followed by 66% relief for the period from 1 July 2021 to 31 March 2022, subject to certain caps.
Confirmation of introduction of tax reliefs for freeports
As previously announced, freeports will be introduced in the UK, and certain 'designated tax sites' in those areas will benefit from a number of tax reliefs, including:
- full relief from SDLT, subject to the land or property being used in a 'qualifying manner', with a 3-year clawback period;
- 10% enhanced rate of structures and buildings allowances (compared to the standard 3% rate) on construction or renovation of non-residential properties; and
- 100% enhanced capital allowances for expenditure on new plant and machinery for use in freeport tax sites.
Should you have any queries on the issues raised in this summary, please reach out to your usual UK tax contact or one of the contacts below.
