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Enterprise zones

Stamp Duty Land Tax (SDLT) anti-avoidance

SDLT on bulk purchases of residential property

Real Estate Investment Trusts (REITs)

Enterprise zones
21 new enterprise zones will be created this year.  Businesses within the zones will qualify for 100 per cent business rate relief for 5 years.  In addition, the government will consider introducing enhanced capital allowances for business in these zones if there is a strong focus on high value manufacturing.

Given that the legislation on the enterprise zones that were introduced by the Conservative government in the 1980s is on the eve of being repealed (on 5 April this year) and there are no signs that the repeal will be stopped, we must assume that the "new" enterprise zones might take a different form to the old ones (which, aside from the business rates advantages, delivered their benefit in the form of enhanced industrial buildings allowances, which have also been abolished) and may not be geared towards new buildings as the old ones were.

Until further information is published about what kind of expenditure the proposed "enhanced capital allowances" for these enterprise zones are intended to cover, it is not clear how they will drive growth in neglected areas.

Stamp Duty Land Tax (SDLT) anti-avoidance
Legislation will be introduced to shut down certain SDLT schemes: the use of sub-sales and alternative finance relief; using a Consumer Credit Act licence to qualify as a financial institution for the alternative finance reliefs; and manipulation of the market value of land in exchange transactions.

There are three schemes under attack.  The first involves coupling a sub-sale with an alternative finance relief (commonly called a Sharia sale and leaseback).  The second is engineering a transaction to be within the alternative finance relief by the purchaser registering as a financial institution (obtaining a Consumer Credit Act licence costing only a few hundred pounds).  The third involves manipulation of the market value of land when tax is charged on the market value, rather than the actual consideration passing.

In recent years, HMRC has introduced more and more anti-avoidance rules to try to crack down on the still-buoyant SDLT avoidance market including the introduction of the much hated SDLT "general anti-avoidance rule" in 2006.  Even so, avoidance schemes are still being employed after the increased rate of SDLT on high value residential purchases to 5 per cent on 6 April 2011 is only likely to fuel attempts to avoid the tax. The quality and effect of the many amendments that have been made must be questioned if, despite all of them (including one of the most widely drafted set of anti-avoidance rules on the statue books), loopholes still exist.

Unusually, purchasers will have until midnight on Budget Day to complete their transactions before the new anti-avoidance rules apply.

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SDLT on bulk purchases of residential property
The Finance Bill will include legislation to ensure that the rate of SDLT payable on bulk purchases of dwellings will be determined by the arithmetic mean of the consideration given for each dwelling, not the aggregate consideration.

Currently, when a number of dwellings are acquired, the aggregate consideration is used to determine what rate of SDLT is payable.  For example, if 4 houses each costing £225,000 were acquired, SDLT at 4 per cent would be payable on the total consideration given of £900,000.  The new rule would reduce the rate of SDLT to 1 per cent (the rate that would be payable if each house were acquired separately in individual transactions).

This is a move to be welcomed by any purchasers of property portfolios that include dwellings and is a sign that the Government is taking seriously the calls for large investors to participate in the private rented sector.  It will be particularly welcome given that the rate of SDLT for acquisitions of dwellings costing more than £1m will increase to 5 per cent on 6 April 2011.

Real Estate Investment Trusts (REITs)
An informal consultation will be launched to investigate a possible relaxation of the REIT rules.  This will look at, in particular, the abolition of the REIT entry charge (2 per cent of the market value of the properties held by the REIT when it joins the regime) and the requirement to be listed on a stock exchange.

Among the other rules to be looked at are the introduction of a diverse ownership rule to allow institutional investors to set up UK-REITs and extending the time that REITs have to make distributions to shareholders (including stock dividends).  In addition, relaxation of certain of other REIT entry rules will be considered to encourage new entrants to the market.

This consultation is a result of lobbying by the British Property Federation and the Property Industry Alliance to encourage the Government to look at ways in which the REIT market can be opened up to smaller operators and new ventures, rather than catering solely to the established players in the market that are already listed and convert to REIT status.

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