Budget 2017 – What it means for Construction & Real Estate
Posted On March 9, 2017 By mhauk
The Spring Budget was relatively uneventful for those in the property and construction sector. That may come as a welcome relief to many, with previous budgets introducing increased tax liabilities to property investors in particular.
One measure that may be seen as an effective increase in tax is a 2% increase in the main rate of national insurance for self-employed individuals. This would certainly affect subcontractors in the sector. The rate is set to increase from 9% to 10% in April 2018 and to 11% in April 2019.
The government has tightened the provisions on a previously announced measure that brings the disposal of UK property by offshore developers within the scope to UK tax. The changes introduced in this budget focus on bringing profits on long-term contracts within the scope to UK tax, that might have otherwise been avoided under the previous incarnation.
Changes have also been made in respect of appropriation of capital assets to trading stock. This may affect businesses that have held property for investment purposes, that later decide to develop that property. Under old rules, a property could be effectively transferred to stock at its tax base cost. Where the developed property was sold at less than the tax base cost, a trading loss would arise. As trading losses provide more options for relief than capital losses, the government has deemed this to be unfair. Under new rules, capital assets will only be able to be transferred to stock at their tax base cost where it would otherwise result in a gain. Transferring assets standing at a loss will result in a capital loss arising.
Finally, the government has announced they will consult on introducing new rules to combat VAT fraud on the provision of labour in the construction sector. Whilst limited information has been announced, new rules may result in a change in VAT accounting for property developers buying in labour only construction services. This could introduce a further VAT compliance burden to a sector that is already subject to complex VAT rules.
On a wider economic note, any investment in infrastructure is always welcome and it was announced that there will be transport spending of £90m for the north of England and £23m for the Midlands on road improvements.
Business Premises Renovation Allowances (BPRA)
As outlined in prior economic budgets, the Business Premises Renovation Allowances (BPRA) scheme which has provided an initial 100% tax allowance for both corporates and individuals who have converted or refurbished property in Government approved disadvantaged wards, is due to end with effect from the following:
- 31 March 2017 – for Corporation Tax
- 5 April 2017 – for Income Tax
No extension to the scheme has been made available in the budget and as such closer attention will have to be paid to the analysis of refurbishment and fit-out expenditure incurred in future periods, especially with the Annual Investment Allowance (AIA) now resting at £200,000 for periods post 1 January 2016.
Energy Efficient Plant & Machinery
Given the reduction in both the AIA from 1 January 2016 closure of the BPRA scheme, a key focus for those purchasing assets is to identify energy efficient assets within their facilities which can be classified as 100% First Year Allowances (FYA’s) under the Enhanced Capital Allowances (ECA’s) regime. Such assets may be immediately identifiable from an analysis of fixed asset additions or may be more widely integrated into larger asset additions.
Furthermore, until 31 March 2019, 100% FYA’s are now available on new electric charging points installed and this regime complements the 100% FYA for cars powered by natural gas, biogas and hydrogen.
Robert Dowling, Construction and Real Estate sector head added: “On first glance, not a very exciting budget for the sector, but there are one or two areas that will not be good news for the smaller businesses. On the plus side, the introduction of Making Tax Digital has been delayed for the smallest businesses and landlords. The planned infrastructure spending will be good news for our civil engineering clients. No doubt further detail on the more technical points will emerge in the coming days and weeks and we will keep a watch out for those for our clients.”
If you would like to understand more about these announcements or would like to discuss this with a member of our Construction & Real Estate team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with your local representative.