Budget Speech Done…Now What?

Article written by Jake Pearlman, Chartered Accountant at haysmacintyre.

On Wednesday 3 March 2021, eyes across the UK once again turned to their TVs, hoping for clarity and certainty as Rishi Sunak, Chancellor of the Exchequer, delivered his second Budget. The focus of his speech was around supporting jobs and companies through what we all hope are the final stages of the COVID-19 pandemic.

The Government announced various extensions to support schemes in place over the past 12 months, as well as other tax measures to kick-start the economy as we emerge out of lockdown. Inevitably this Budget will impact all UK businesses, but there are a number of particular measures affecting those working in the property industry:

New policies

Mortgage guarantee scheme

One of the key new schemes arising from the Budget to support the property industry is the mortgage guarantee scheme. The scheme, starting in April 2021, will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000. Under the scheme, all buyers will have the opportunity to fix their initial mortgage interest rate for at least five years. The scheme, which will be available for new mortgages up to 31 December 2022, is designed to increase the availability of mortgages on new or existing properties for those with small deposits.

Corporation tax

Perhaps the most significant tax increase in the Budget announcement was the increase in Corporation Tax to 25% for companies with profits over £250,000 from 1 April 2023. The current 19% rate will remain for companies with profits below £50,000, with a tapering for those between the two thresholds. The delayed start date of this tax increase provides property businesses time to plan ahead and consider whether the structure of their business remains fit for purpose.

Super-deduction

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances. Under this measure, a company will be allowed to claim a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% from the main rate writing down allowances, and a first year allowance of 50% on most new plant and machinery that ordinarily qualify for special rate 6% writing down allowances.

Losses

The Chancellor has announced that any businesses with trading losses, both corporates with accounting periods ending in the period from 1 April 2020 to 31 March 2020 and unincorporated businesses in the tax years 2020/21 and 2021/22, can carry back losses for three years. There is a cap of £2m that can be carried back more than one year for each accounting period or in each tax year. Whilst this will not be beneficial for landlords, given their business likely will not constitute a trading business, this could potentially be beneficial to property developers.

COVID-19 temporary schemes

Stamp Duty Land Tax (SDLT)

As many will have seen in the last nine months, SDLT had a temporary increase in the nil rate threshold for residential properties from £125,000 to £500,000 in England and Northern Ireland, which was set to return to the previous threshold from 1 April 2021. The Chancellor announced an extension to the temporary increase to 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000 before returning to the standard amount of £125,000 from 1 October 2021, providing a further boost to the housing market.

Rishi Sunak did however propose new SDLT rates for purchasers of residential property in England and Northern Ireland who are non-UK residents. The new rates will be 2% higher than those that apply to purchases made by UK residents, and will apply to purchases of both freehold and leasehold property as well as increasing SDLT payable on rents on the grant of a new lease. The surcharge will apply to land transactions with an effective date of 1 April 2021 with transitional rules applying to some contracts exchanged before 11 March 2020 or substantially performed before 31 March 2021 and not completing until on or after 1 April 2021.

Coronavirus loan schemes

The Budget announced a new loan scheme to be introduced to replace those schemes launched in 2020 and now coming to an end. From 6 April 2021, the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10m to give them confidence to provide finance to UK businesses.

Restart Grants

In addition, Restart Grants in England will be provided up to £6,000 per premise for non-essential retail businesses and up to £18,000 per premise for hospitality, accommodation, leisure, personal care and gym businesses.

This cash inflow will provide much needed certainty to plan ahead and relaunch trading over the coming months.

Business rates

The Chancellor announced a continuation of 100% business rates relief for eligible retail, hospitality and leisure properties to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2m per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

The Government has announced that it would conduct a fundamental review of the business rates system in England, with a final report expected to be announced in Autumn 2021.

Coronavirus Job Retention Scheme (CJRS)

The CJRS has been extended to 30 September 2021. The level of grant available to employers under the scheme will stay the same as the previous 12 months until June 2021. From 1 July 2021, the level of grant will be reduced, and employers will be asked to contribute towards the cost of furloughed employees’ wages. This will reduce from 80% to 70% in July 2021 and 60% for August and September 2021.

The Budget has also announced further grants for those who are self-employed with grants in place until September 2021.

Missing parts

The announcement, understandably, focussed on the positives. Rishi Sunak focussed on coming out of lockdown and how the Government will support businesses and people through a period of re-building. However, what was perhaps most noticeable was the lack of mention of any changes to Capital Gains Tax (CGT) or Inheritance Tax (IHT). There had been speculation for many months as to whether CGT rates would rise in line with income tax rates. Whilst the Chancellor has left CGT untouched for now, speculation remains that an Autumn budget will bring about the increases that have been long discussed. This does provide businesses and landlords alike a further six months to plan ahead and consider their next steps. The Chancellor has also helpfully left Business Asset Disposal Relief (previously ‘Entrepreneurs Relief’) untouched for now, providing lower CGT rates and further incentive to consider a sale before any future changes.

What next?

This perhaps was not the dramatic Budget many were expecting and was instead a Budget focussed on rebuilding our economy. Whilst this Budget could be described as the calm before the storm, the Chancellor has once again tried to support UK businesses as we emerge from lockdown. For the property industry, new schemes will provide a welcome short-term boost, but proposed tax hikes remain on the horizon. The industry can only watch on, digest this Budget and plan for the future, where possible, as we enter what is sure to be a turbulent period.