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Chancellor Rishi Sunak laid out changes to property tax as part of his 2021 Budget, delivered on October 27. Here is everything you need to know...
Taxation of securitisations
Enabling legislation is to be introduced to allow HM Treasury to make changes to stamp duty and stamp duty reserve tax (SDRT) in relation to securitisation and index-linked securities arrangements by Statutory Instrument. It will have effect from the date of Royal Assent to the Finance Bill 2021–22.
This follows consultation earlier in the year on reform of the way securitisation companies are taxed with the broad aim of maintaining the UK as a leading financial services centre.
ATED rates for 2022–23
The rates of annual tax on enveloped dwellings (ATED) to apply in the year beginning 1 April 2022 have been announced. They are shown below, alongside the 2021–22 rates.
|Taxable value of the property
|Charge for 2021–22
|Charge for 2022–23
Residential property developer tax
The Chancellor announced that the rate of the new tax (RPDT), to take effect from 1 April 2022, will be 4%, charged on profits from residential-property development activities in excess of £25m derived in accounting periods ending after 31 March 2022.
The tax will apply to companies with profits arising from the development of UK residential property but in a group of companies only where the group’s profits from that activity exceed £25m per year. The allowance will be shared among property-development companies in the group. The tax will share accounting periods and reporting with corporation tax. RPDT will not be deductible when computing taxable profits for corporation tax.
What constitutes ‘development’ will be widely defined to include:
• dealing in or designing residential property;
• seeking planning permission for residential property construction;
• construction or adaptation of residential property;
• marketing or managing residential property.
Legislation for the tax was published in draft form earlier in the year but as now enhanced will appear in the Finance Bill 2021–22.
Only companies subject to UK corporation tax will be liable to RPDT.
Real estate investment trusts (REITs)
Measures have been announced intending to enhance the attractiveness of the REIT regime, through removing administrative burdens and constraints.
The changes will:
• remove the requirement for REIT shares to be admitted to trading on a recognised stock exchange in cases where institutional investors hold at least 70% of the ordinary share capital in the REIT;
• amend the definition of an overseas equivalent of a UK REIT so that the overseas entity itself needs to meet the equivalence test. Currently it is the overseas regime to which it is subject which needs to meet the test;
• remove the ‘holders of excessive rights’ charge where property income distributions (PIDs) are paid to investors entitled to gross payment;
• amend the rules requiring that at least 75% of a REIT’s profits and assets relate to property rental business (the ‘balance of business test’). Non-rental profits arising because a REIT has to comply with certain planning obligations will be disregarded. Amendments will ensure items currently specified as excluded from the profits part of the test are disregarded in all parts of the test;
• introduce a new simplified balance-of-business test. If group accounts for a period show that property-rental business profits and assets comprise at least 80% of group totals, a REIT will not have to prepare the additional statements which would be required to meet the full test.
A number of measures have been announced to reduce the burden of business rates in England, without radically reforming the system. They include:
• freezing the business-rates multiplier at the current level of 49.9p (small-business multiplier) and 51.2p (standard multiplier) for the year to 31 March 2023;
• introducing a new temporary 50% business-rates relief for the year to 31 March 2023 for eligible retail, hospitality and leisure properties, capped at £110,000 per business;
• introducing a 100% improvement relief for occupiers who make eligible improvements to an existing business property which increase its rateable value;
• introducing a targeted exemption for use of eligible plant and machinery for onsite renewable energy generation and storage, and a 100% relief for eligible heat networks, for two years from 1 April 2023;
• increasing the frequency of revaluations from every five years to every three; and
• extending transitional relief for small and medium-sized businesses, and the supporting small business scheme, for a further year. This will restrict bill increases to 15% for small properties (up to a rateable value of £20,000 or £28,000 in Greater London) and 25% for medium properties (up to a rateable value of £100,000).
English local authorities will be fully compensated for the loss of income as a result of these measures.
Value added tax
Implementation of VAT rules in free zones
A new VAT exit charge will be introduced to prevent businesses, that might otherwise seek to locate in a free zone solely to avoid irrecoverable VAT, from gaining an unintended tax advantage.
The new charge will apply where:
•goods that have benefitted from a zero-rated supply are put into free circulation without any qualifying onward supply being made within three months; or
•a person receives a zero-rated free zone supply of goods in respect of which there is a breach of the rules relating to the free zone customs procedure.
Additional amendments will also be introduced so that provisions relating to previous free zone legislation no longer have effect and to ensure the warehousing regime rules and the free zone rules are mutually exclusive.
The measures will take effect from 3 November 2021.
Northern Ireland second-hand margin scheme interim arrangements
Once a relevant agreement has been reached with the EU, legislative changes will be introduced allowing the use of the VAT margin scheme for sales in Northern Ireland of motor vehicles sourced from Great Britain and first registered prior to 1 January 2021.
Under the Northern Ireland protocol, the VAT margin scheme is not currently available for sales of motor vehicles in Northern Ireland if they were purchased in Great Britain.
The changes will come into effect on a date to be appointed and will have retrospective effect to the end of the transition period.
Second-hand motor vehicle export refund scheme
To support the second-hand motor vehicle industry in Northern Ireland, the Government is introducing a second-hand motor vehicle export refund scheme.
Eligible businesses who remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund in respect of VAT. This means that motor vehicle dealers in Northern Ireland will remain in a similar financial position as those applying the VAT margin scheme elsewhere in the UK.
Legislation outlining the detail of the scheme will be introduced in 2022.
VAT exemption for dental prostheses
The current exemption for dental prostheses supplied by registered dentists and other dental care professionals or dental technicians is to be extended to imports of dental prostheses by those persons to ensure supplies continue to be exempt between Great Britain and Northern Ireland.
Under the Northern Ireland protocol, EU VAT rules apply in relation to goods in Northern Ireland and movements between Great Britain and Northern Ireland are treated as imports. Following the end of the transition period, therefore, VAT was due at the standard rate for dental prostheses supplied between Great Britain and Northern Ireland, potentially increasing prices for patients since the VAT was irrecoverable.
This was an unintended consequence of the Northern Ireland protocol and, to remedy it, the new exemption will apply retrospectively from 1 January 2021.
VAT treatment of fund management fees
The Government is to consult on options to simplify the VAT treatment of fund management fees.
Budget 2021 - Overview of Changes
• Administration and Compliance Changes
• Capital Gains Tax (CGT) Changes
• Corporation Tax and Other Business Tax Changes
• Customs and Excise Duties Changes
• Employment Tax Changes
• Personal Tax Changes
• Property Tax Changes