The Chancellor announced a number of measures that have relevance to the real estate and construction sector; namely to encourage greater levels of construction and investment. Of particular note are the steps reduce barriers to home ownership through changes to Stamp Duty Land Tax (“SDLT”) thresholds, stripping back regulations on building new homes and infrastructure projects, and the introduction of investment zones with enhanced tax reliefs.
The Government stated that it is committed to helping first time buyers get onto the property ladder. However, this group faces a number of challenges including the cost-of-living crisis (reducing their ability to save for deposits) and higher interest rates on mortgages (reducing their borrowing ability and impacting on affordability tests). Additionally, we may also see an increase in house prices driven by the reduction in SDLT rates.
Keeping the rate of corporation tax at 19% and the retention of the £1m AIA threshold will be welcomed by the real estate and construction sector, which is facing challenges from rising borrowing costs and reduced consumer net incomes.
The same can also be said for the introduction of investment zones. Conceptually, such zones are not new; currently there are 48 Enterprise Zones established across the UK. However, the proposed regime is very generous in terms of tax incentives and the liberalisation of planning and other potential barriers to investment and development. Some have raised concerns that such zones will encourage the movement of existing businesses into the zones, however, rather than actual new investment. It remains to be seen where these new investment zones will be introduced.
It is also worth noting what was not changed. Residential Property Developer Tax (“RPDT”) - the surcharge to corporation tax that applies to the largest residential developers - is to remain in place and unmodified. However, due to the 19% corporation tax rate, the highest tax rate that would apply will be 23%, rather than the planned 29%. Whilst the Government appears committed to supporting the house building sector, it also wants the sector to “pay its fair share” of tax. Similarly, there was no reference to the ongoing Government proposal to remove the tax privileges currently afforded to sovereign immune investors as an alternative way to stimulate investment and growth.
The proposed measures to reduce regulatory barriers to building new homes and key infrastructure projects should be welcomed by house builders and infrastructure investors. It is worth noting, however, that historically the UK planning system has proved challenging to reform. Many have tried in the past. Such plans should also be considered alongside such measures as the current consultation on the UK tax treatment of sovereign immune investors. Historically, such investors have been very active in investing into infrastructure projects as well as residential developments such as build-to-rent and student accommodation.
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