Budget 2021: key policies for real estate

The stamp duty holiday (zero duty payable on purchase price of up to £500,000) which has been in place since 8 July 2020 has been extended until 30 June 2021 to provide buyers with more time to complete transactions and to avoid thousands of aborted sales. The Government will implement a tapered transition back to the usual nil rate band for SDLT. From 1 July 2021 until the end of September 2021 the nil rate band will apply to transactions of up to £250,000 only returning to a £125,000 threshold from 1 October 2021.

This will be a welcome U-turn from the government’s previous resistance to an extension back in December 2020 when the Treasury stated that “the SDLT holiday was designed to be a temporary relief to stimulate market activity and support jobs that rely on the property market. The Government does not plan to extend this temporary relief.” The change appears to have resulted from pressure from lobbying groups and recommendations of the Law Society. Nick Whitten, head of UK living research at JLL, commented that “the extension will provide welcome relief to those purchasers and open the door to additional buyers” but noted that “there now needs to be clear signposting introduced to ensure the cliff edge is not just pushed further down the road.”

Mr Sunak acknowledged that even with the current SDLT holiday there remains “a significant barrier to home ownership”. In order to turn “generation rent into generation buy” a new government backed loan guarantee scheme is to be launched for first time buyers (a new iteration of Help-to-Buy).

The new mortgage guarantee would assist those first-time buyers with a 5% deposit. From April 2021 a number of the UK’s largest lenders, including Lloyds, Barclays, HSBC and Santander will be offering 95% mortgages for properties worth up to £600,000 which will be government backed.  

Developers and housebuilders will in turn likely benefit from these new proposals as their pool of prospective purchasers will be widened without the need for pricing structures to be altered.

The current year-long business rates holiday for retail, hospitality and leisure, due to expire on 31 March 2021 will be extended to the end of June 2021. For the subsequent 9-month period business rates will continue to be discounted with only two thirds of the full rates being payable and capped at £2 million for certain businesses.

This will be a welcome relief to industries that have experienced huge losses as a result of the pandemic. A joint study by researchers at Newcastle and Cambridge universities found that “in the period March–August 2020, COVID-19 restrictions accounted for a £20 billion loss in sales in non-food stores, and £25 billion loss in turnover for food and beverage serving services.”

However, there are concerns about what effects will be felt once the relief expires. Melanie Leech, Chief Executive of the British Property Federation has warned that “when temporary relief ends, the Government must be ready with a new regime which best future-proofs the system as our economy continues to evolve.”

VAT breaks for the hospitality and tourism industry will also be extended. Around 150,000 businesses in those sectors need support and in order to assist with cash flow and to protect jobs the 5% reduced rate of VAT will be extended to 30 September 2021. Again, once the relief is withdrawn a process of tapering will be applied with an interim VAT rate of 12.5% applying for a six month period returning to the full 20% standard rate in April 2022.

To further help the hospitality industry, the Treasury appear to have responded to lobbying groups (particularly from the pub sector) by cancelling planned increased in duties on alcohol. The result is a duty freeze on alcohol for two consecutive years.

A new “re-start grant” will be made available from April 2021 to assist businesses with the process of reopening (this is in line with the roadmap out of lockdown which will allow certain businesses to reopen as of 12 April 2021).

Since non-essential businesses will be permitted to re-open first under the government’s strategy, those businesses will receive a grant of £6,000 per premises. Hospitality and leisure (including personal care and gyms) will be allowed to re-open at a later date and will therefore be subject to a longer period of restriction. As a result, those businesses will receive up to £18,000. According to Mr Sunak, this amounts to £5bn of new grants and direct total cash support to business of £25bn.

Helen Dickinson, Chief Executive of the British Retail Consortium, has heralded restart grants as a “vital injection of funding…to help ‘non-essential’ retailers improve safety measures, build up stocks, and prepare for reopening” but has cautioned that “the Chancellor gave no clarity on EU state aid rules and if these continue to apply to grants for closed businesses, then many larger companies, employing hundreds of thousands of people, will miss out.”

A fund of £700m will also be made available to “support arts, culture and sport” however details of the allocation of and eligibility for funding were not provided in the announcement. A pot of £150m will also be made available to help communities to take ownership of pubs and theatres, not only putting “power in the hands of local people” but presumably enabling another avenue through which failing or ailing businesses can be saved.

The Treasury acknowledged that in addition to grants and rates relief, certain businesses will also need loans, as the government’s previous loan schemes come to an end (i.e. the ‘bounceback loan’ scheme). To address this requirement, the Chancellor announced the launch of a new “recovery loan scheme” which will be available to businesses of any size who can apply for a loan through to end of the year. These loans will be government backed up to 80%.

The announcement of a new super deduction for companies forms part of the “investment led recovery” strategy that the Chancellor has focused on in this Budget.

Over the next two years companies will be able to reduce their tax bill when they invest in new plant and machinery. The reduction will not be proportional or indeed “full expense” but will be an inflated 130%. In practice, using the Chancellor’s example, a construction firm buying £10m of equipment would be able to reduce its profit by £13m. The OBR anticipates that this super deduction will boost business investment by 10%, elevating the UK to 1st position for business investment reliefs within the OECD. As Mark Farmer (Cast Consultancy and UK Government Champion of MMC) tweeted: “Good news for those construction businesses wanting to invest in their future through modernisation.” 

The Treasury has, not unexpectedly, announced that it is “necessary to ask business to contribute to recovery” in order to shore up government funds. In 2023 the rate of corporation tax paid on company profits will increase to 25%. However, there are a number of “protections” that are designed to soften the blow.

1. The higher rate will not take effect until April 2023, well after the point at which the UK economy is expected to have recovered.
2. Corporation tax is only charged on company profits so any struggling business, who by their very circumstance will not be generating profits, will be unaffected.
3. SMEs with profits below £50,000 or less will benefit from a “small profit rate” which is to be maintained at the current corporation tax rate of 19%. This will result in an estimated 1.4 million businesses being unaffected by the tax hike.
4. There will be a reintroduction of the tapering effect applied for profits between £50,000 and £250,000 which will result in only businesses with profits in excess of £250,000 being taxed at the full 25% rate. On this basis, the treasury estimated that only 10% of companies will pay the full higher rate. As a "sweetener" the tax treatment of losses will be modified to enable businesses to “carry back” losses of up to £2m for up to 3 years resulting in an overall cash flow benefit.

A revenue-generating tax increase has been favoured over suggestions that reducing corporation tax would encourage inward investment – the hypothetical benefit of boosted investment being outweighed by an assured income for the Treasury.

However, the inward investment point has not been disregarded - although the revised rate will sit above the average corporate income tax rate of 21.9% among European OECD countries it will remain lower than the corporate income tax rates of G7 countries such as Germany (29.9%), France (31%) and Italy (27.8%). This appears to reflect the policy intentions of President Biden’s administration which has indicated that an increase to corporation tax in the US (to perhaps 28%) is being considered.

The Chancellor announced freeports as a UK-wide policy and set out plans for eight new freeport locations across the UK: East Midlands Airport, Felixstowe, Liverpool, Humber, Plymouth, Thames, Solent and Teesside. These special economic zones will make it easier and cheaper to do business (due to simplifications and duty suspension benefits) and are based on a well-established freeport concept which operates internationally. Freeports will simplify planning to allow business to build and will offer tax breaks to encourage construction and private investment.

A “green tinged” Budget was expected by many given the Prime Minister’s commitment to the environmental Ten Point Plan and the various themes set out in the Energy White Paper. Although focus was on jobs and industry immediately at risk from the effects of the pandemic the Budget did include a number of green proposals including:

• the establishment of a new UK infrastructure bank (located in Leeds) to invest circa £22bn in public and private projects and to fund the “green industrial revolution.”
• funding of new Offshore wind – finding new port infrastructure, in Teesside and Humberside, for offshore wind projects;
• green gilt issuance to fund infrastructure investment & create green jobs; and
• the launch of a new savings product which will give people the chance to invest in green products (i.e. green savings bond).

A number of organisations have welcomed the announcements, for example, Renewable UK’s chief executive Hugh McNeal has commented that “the Government is putting its support squarely behind the kind of strategic approach to securing supply chain investment which the industry has been making the case for during our intensive work with Ministers to deliver the green economic recovery this country needs.” However, there are calls for the government to go further - the Aldersgate Group’s executive director Nick Molho has noted “a number of significant missed opportunities within key areas such as housing and transport that must be picked up in the Government’s upcoming net-zero strategy, which needs to provide a cross-economy roadmap to reach our net-zero target by 2050.”

Mr Sunak reiterated that protecting jobs remained his “highest priority” and confirmed that the furlough scheme, due to end by April 2021, would be extended until the end of September 2021. It will remain the case that employees will receive 80% of salary for hours not worked until the scheme ends. The government will shoulder the costs until July 2021 from which point, as businesses re-open, businesses will be expected to contribute 10% towards the funding of furlough payments rising to a 20% contribution in August and September.

This extension, anticipated only to apply to sectors that were most affected by legal restrictions (such as hospitality and leisure), will apply across the board and will extend “well beyond the end of the roadmap to accommodate even the most cautious view.” The extension will provide employers with additional time to bring back their employees and adjust their workforce to more ‘normal’ working patterns following the lifting of public health restrictions.

It is hoped that the furlough extension will continue to help businesses to survive and in turn to stave-off CVAs and administration procedures which will ultimately keep business premises open, leases operational and landlords with income (albeit in some cases on a deferred or concession basis).

A UK wide “help to grow” scheme will be launched to help small businesses to access management training. Business schools across the UK will offer a new management programme for this purpose and government will cover 90% of the costs.

A “help to grow digital” scheme will also assist small businesses to develop digital skills – this is particularly relevant since many businesses have moved online. Digital development will help SMEs to save time/money by adopting ‘productivity enhancing’ software to transform the way they do business. Industry publication Building Magazine has reported that the digital support for small businesses is “important for construction, where a majority of the supply chain is made up of SMEs.”

Both schemes commence in autumn with registration opening today. The Treasury expects that the schemes could benefit over 100,000 small businesses.

As well as receiving a boost via the Super Deduction the Government has further signalled its support for Modern Methods of Construction (MMC) by announcing the creation of a MMC Taskforce. Backed with £10m of seed funding the task force will support the delivery of homes built using MMC in the UK and is set to work with local authorities and Mayoral Combined Authorities including West Midland Combined Authority and Liverpool City Region (which are reported to have ambitious plans for harnessing MMC). In line with the Government’s ‘levelling up’ plans the task force will be based in Wolverhampton.

Government support for apprenticeships continues with an extension of the apprenticeship hiring incentive in England until 30 September 2021 and an increase in payments to organisations which hire an apprentice from £1,500 (or £2,000 for apprentices aged 24 or under) to £3,000.  There will also be £7m of funding for a new "flexi job" apprenticeship programme in England which will enable apprentices to work for a number of employers within one sector.  Hopefully this will halt the decline in construction apprenticeships starts over the last couple of years and go so some way to dealing with the skills and labour shortage in the construction sector which has been exacerbated by Brexit and immigration policy changes.

The fiscal pledges made in the Conservative manifesto in relation to NI, income tax and VAT remain untouched in the Budget. The Chancellor has announced that personal tax thresholds will increase to £12,570 next year (with the higher rate threshold increasing to £50,270) but the thresholds will then be frozen until 2026. As the Chancellor explained, this would not result in take home pay being less than it is now, however the move will raise revenue for the Treasury since over the coming years more people would pay a higher rate of tax on part of their income.