Last week, Chancellor Rishi Sunak delivered the Autumn UK Budget. The backdrop is sobering, with consequences due to the pandemic contributing to a 10% shrink in the UK economy and borrowing currently the highest it has been outside of wartime. His budget focused on continued support and recovery.
A number of consultations have run during the last year, some of which have the potential to make a significant impact on the real estate sector. The budget has provided some additional details, in addition to new announcements:
A new regime will be established from April 2022, which will introduce the Qualifying Asset Holding Company, being an investment company at least 70% owned by diversely owned funds, or eligible institutional investors (QAHC). Legislation is imminent. The regime is designed to make the UK more competitive as a holding company location and has the potential to challenge some of the dominant jurisdictions, such as Luxembourg.
Potentially very complimentary to the new QAHC regime, a consultation has been opened on permitting overseas companies to redomicile to the UK. The consultation runs to January 2022.
Also arising from the consultation process, the UK REIT regime will be updated from April 2022. The listing requirement will be removed where the shareholders of the REIT comprise of at least 70% institutional investors and a number of more minor amendments and simplifications of the REIT rules.
REITs remain a popular platform for investment into UK real estate and the updated rules will remove some of the costs of the regime, which will no doubt enhance its attractiveness.
From April 2022 a new tax on the profits derived from UK property development will take effect. The budget has confirmed a tax rate of 4%, relevant only to developers with profits of more than £25 million. The tax is being raised to in-part fund the removal of unsafe cladding alongside a new Building Safety Levy. Build-to-rent investors should be out-of-scope, with the tax aimed at residential developers whom hold their interest in property as trading stock.
The Corporation Tax rate will rise to 25% from April 2023, as announced in the Spring Budget.
The deadline for residents and non-residents to pay CGT and complete the associated reporting have been extended from 30 to 60 days.
The Chancellor announced that for eligible businesses in the retail, hospitality and leisure sectors, a business rates relief of 50% is available through to April 2023, up to a cap of £110, 000. Additionally, the annual inflationary increase has been cancelled next year and a move to three yearly business rates revaluations (from five years) are being introduced.
Relevant to the wider real assets sector, the following points were announced:
The Chancellor announced the first ever UK Infrastructure Bank, noting that the future economy needs investment in green industries across the UK. Located in Leeds, the Bank will invest across the country in public and private projects to finance the green industrial revolution.
Beginning this spring, it will have an initial capitalisation of £12 billion and is expected to support at least £40 billion of total investments in infrastructure.
New port infrastructure to build the next generation of offshore wind projects was announced with a £160 million package. Much of this investment will be focused on building hubs in the North-East.
On the back of the recent announcement of a Sovereign Green Bond, the Chancellor also announced plans for a new retail savings product to give all United Kingdom savers the chance to support green projects. The green savings bond is set to raise £94 million.