The biggest surprise in the Spring Budget was perhaps the raucous reaction given by the House to a fairly muted set of tax proposals. Perhaps it was the whiff of an election in the air that was the cause of excitement, so much so that the Deputy Speaker had to frequently intervene instructing all sides of the chamber to "shout more quietly". Our full Spring Budget briefing is here, and we summarise below the announcements of most interest to the rael estate sector:
1 Abolition of Multiple Dwellings Relief for SDLT
Residential stamp duty land tax ("SDLT") has over recent years become overcrowded with many different rates and regimes – including first home buyers' relief, a 3% surcharge for purchasers of second homes, a 2% surcharge for non-residents, and a 15% flat rate for purchases of properties by companies and other legal bodies. One of these regimes is multiple dwellings relief, which can reduce the rate of SDLT for the simultaneous purchase of multiple residential units from 15% to 1%. The introduction of these other rules has made this relief less valuable over time, and so its abolition is likely not as much a disappointment for taxpayers as it might have been had it happened a decade ago. However, it will likely increase the SDLT bill for corporate purchasers of care homes and student accommodation as well as individuals buying a house with a granny annexe – the Government has estimated an increase in revenue of £385m in 2028–29. The abolition takes effect from disposals made on or after 1 June 2024.
2 Abolition of Furnished Holiday Lettings regime
Those who let furnished holiday homes out on short-term lets in the UK are entitled to reliefs as though they were trading, including business asset rollover relief, the ability to claim capital allowances, and the ability to treat the profits as earnings for pensions purposes. The Chancellor has announced its abolition from April 2025, in a bid to both raise revenue — some £245m in 2028–29 — and help alleviate the housing crisis in UK holiday destinations, such as Devon and Cornwall, by removing this tax distortion between long-term and short-term lets.
3 Capital gains tax rate for residential property reduced to 24%
When the higher rate of CGT was reduced to 20% in April 2016, the Government left the rate at 28% for carried interest and residential property gains, to provide "an incentive for individuals to invest in companies over property". The rates for basic rate taxpayers were also then split between 10% and 18%. The Chancellor has now announced a reduction in the higher rate for residential property from 28% to 24% to "encourage landlords and second home-owners to sell their properties" in a bid to boost Government revenues and the housing supply. The 18% rate that applies to basic rate taxpayer remains unchanged. This means there are now 5 different rates of CGT — 10%, 18%, 20%, 24%, and 28% — more different rates than income tax. This rate reduction took effect from 6 April 2024.
4 Full expensing sought to be extended to leased assets
Full expensing – relief against tax for 100% of capital expenditure on certain assets – was made permanent in the Autumn Statement 2023, but at the time this did not apply to assets held for leasing. In this Budget the Chancellor announced that the Government would consult on extending full expensing to assets which were held for the purposes of being let out to third parties, subject to fiscal conditions allowing. This will be welcomed by those in the industry. Draft legislation will be released shortly for consultation, with the legislation taking effect from a future date to be announced.
5 Introduction of new fund vehicle – the Reserved Investor Fund
The Government has confirmed that, following a consultation last year, it will be going ahead with the introduction of a new type of unauthorised UK fund vehicle – the Reserved Investor Fund (Contractual Scheme) ("RIF"), which is expected to be primarily of interest to commercial real estate investors (due to its VAT treatment). The design of the RIF largely follows the proposals set out in the consultation. The RIF will be transparent for tax on income and not subject to tax on gains, with transfers of units being free from stamp taxes. Investors will generally only be subject to tax on capital gains when they dispose of their units.
A key Government concern had been that a RIF should not enable non-resident investors to indirectly dispose of UK real estate free from non-resident capital gains tax – something which would potentially be possible if the RIF was not itself UK property rich (broadly, if it derived less than 75% of its value from UK land). To address this concern, a RIF will have to either (i) be UK property rich, (ii) only be open to investors who are exempt from UK tax on gains (other than by reason of residence), or (iii) not invest in UK property or UK property rich companies.
The eligibility criteria for RIF status will include that it is both a "collective investment scheme" and an "authorised investment fund" ("AIF") for regulatory purposes, and that it either (i) is not closely held, (ii) is only closely held due to the presence of certain institutional investors, or (iii) meets requirements to be widely marketed and made available to certain categories of investors.
The RIF is to be available to professional investors, as well as those who invest at least £1m (or have already invested in it). The introduction of this new fund vehicle is a welcome development, which, for the right investor base, may be a viable onshore alternative to the Jersey Property Unit Trust ("JPUT"). No date for the introduction of the RIF has been given, although the Government has said it will start legislating for it in the Spring Finance Bill 2024 (with detailed rules to be set out in secondary legislation at a later date).
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