Real Estate IHL Series – Taxing Times

Led by Anna Lowe and Daniel Kennedy, this short and sharp session covered recent updates in tax affecting real estate.

1. VAT and the Reverse Charge

Applies from 1 March 2021 to supplies of building and construction services where the Construction Industry Scheme would apply.   The recipient of the supply (the payer) is required to withhold VAT and account for it to HMRC   Exemption applies for “end-users” but relies on end-user providing a “written notification”.

2. VAT and Dilapidations

HMRC’s Business Brief 12/2020 – VAT early termination fees and compensation payments had implications for real estate including whether VAT should be charged on:

• Break option fees
• Payments to terminate sale contracts
• Liquidated damages

HMRC is considering the position on dilapidations – uncertainty remains.

3. The 2% SDLT surcharge

Applies from 1 April 2021 to acquisitions of residential property by “non-residents”. Meaning of non-resident:

• Individuals – spent less than 183 days in UK in last year
• Partnerships – any of the partners non-resident
• Companies
  • Non-UK companies
  • UK companies where both “close” and under “non-UK control”

4. The “Superdeduction”

Capital allowances - of interest to investors and occupiers. Tax deduction equal to 130% of cost of new items of plant and machinery. Deduction limited to 50% “first year allowance” for long life assets and integral features.  Available for expenditure incurred between 1 April 2021 and 31 March 2023. Potential for clawback when assets are sold.

5. The change that didn’t happen – capital gains tax and corporation tax rates

No change to the rates of Capital Gains Tax, however, changes announced to the rates of corporation tax

• 19% until April 2023
• 25% from April 2023
• Small companies rate and taper relief

Consider forward planning – e.g. disposal of assets prior to increase in rates?

Conclusion

There has been a number of developments in tax affecting real estate recently making it all the more important to seek specialist advice as early as possible.