Alongside Government’s fiscal response to the Coronavirus there were a number of noteworthy announcements for the Real Assets sector.
Before Christmas the newly appointed Chancellor of the Exchequer, Sajid Javid, started to sign-post what we might see in the 2020 spring budget, with promises around infrastructure investment and setting expectations that the rate of Corporation Tax would remain at 19%, instead of reducing it to 17%. There was optimism in the air to push ahead policy with the Conservative party having returned a significant majority in the December General Election.
Move forward just a couple of months and delivering the 2020 budget was Rishi Sunak, appointed Chancellor of the Exchequer following the resignation of Sajid Javid. He had been in office less than a month and had to contend with the unfolding COVID-19 pandemic. Alongside Government’s fiscal response to the Coronavirus there were a number of noteworthy announcements for the Real Assets sector.
Government announced it would invest record amounts in Britain’s roads, railways, broadband, housing and research covering £640 billion over the next five years. This represents significant investment, which alongside improvements is aimed to help ‘level-up’ the UK and reduce regional inequalities.
Structure and Buildings Allowance (SBA)
Stamp Duty Land Tax (SDLT)
With the SBA rate increasing from 2% to 3%, this will provide accelerated tax relief on expenditure incurred on construction and renovation of commercial property.
This will take effect from 1 April 2020.
As expected, SDLT has been introduced at a rate of 2% on the purchase of residential property in England and Northern Ireland and will take effect from 1 April 2021. Details as to exactly how the charge will operate have yet to be seen. It seems likely that there could be a rush of higher-value transactions taking place prior to April 2021 to avoid the surcharge.
A much-needed review of business rates was announced. The review is fundamental and will look at short and long-term improvements, the administration of the regime and possible alternatives to business rates. It is expected that the initial outcome of the review will be available in Autumn this year.
With the end of the Brexit transition period set for the end of 2020, the Government published a consultation focusing on the creation of an Overseas Fund Regime (OFR). The OFR proposes the creation of two separate regimes for overseas retail funds and money market funds and would be aimed at simplifying “the process for allowing investment funds set up overseas to be marketed in the UK.” Overseas funds deemed “equivalent” may then benefit from a more streamlined access to marketing in the UK. The consultation will run until 11 May 2020.
The Government is also consulting on “the treatment of asset holding companies in alternative fund structures.” This consultation is expected to attract a lot of interest from the UK fund industry and its stakeholders, with the consultation outline stating that the review will consider the “taxation and relevant areas of regulation to ensure the ongoing competitiveness and sustainability of the UK [funds] regime as it applies to a fundamental area of the financial services sector.” The consultation is open for response until 20 May 2020.
Finally, another consultation will be made on the double deduction rules and acting together rules within the Hybrid and other Mismatches regime. Her Majesty's Revenue and Customs (HMRC) are aware of stakeholder concerns that the double deduction rules as drafted may be disproportionate, the acting together rules may be too widely drawn and tax-exempt investors face a disproportionate compliance effort. Consultation on this is open for response until 29 May 2020.
HMRC’s Making Tax Digital initiative, with an aim to becoming one of the most digitally advanced tax administrations in the world, commenced with new requirements for the reporting of VAT. An evaluation will be undertaken, with findings published later this year.
A very noteworthy development is the pledge of £1 billion in funding over the next two years to remove and replace unsafe non-ACM cladding from private and social tower blocks over 18 meters tall. This is in addition to the £600 million targeted at the ACM cladding. It is a condition of the funding that building owners must pursue warranty claims or actions against those responsible for putting unsafe cladding on the buildings. It is hoped that the fund will speed up the removal and replacement of cladding for residents and deliver the improvements in fire safety in this area.
Further funds have been made available to HM Land Registry to continue digitising land registration in England and Wales and enable further innovation in the property market and the wider UK economy.
As sign-posted, the rate of Corporation Tax will remain at 19%. It is also worth noting that previous changes to the taxation of non-resident landlords take effect from April 2020, when they become subject to UK Corporation Tax. Several administrative tasks will be required by non-resident landlords to successfully transition into the Corporation Tax regime.
Sanne's team of Real Assets experts spans a global office network. The team have a proven track record in assisting clients and entities administered through new taxation and compliance requirements. We take an active role in industry consultations and disseminating our knowledge into the market, including presenting external training events. We take pride in our ability to deliver the solutions required by our clients to support their real asset investment structures, in an ever-evolving industry.