Property & Construction sector and the mini-budget

Although it was termed a ‘mini-budget’ the Chancellor Kwasi Kwarteng’s statement on Friday was anything but mini!

The new Chancellor told the House of Commons that the Government’s new economic package, termed ‘The Growth Plan’ is intended to lower inflation, cut taxes and drive economic growth and that it will herald a “new era for Britain” by “igniting growth”.

As more specific details come out in the coming days and weeks we will keep you informed but here’s a summary of the key announcements which will impact the sector:

‘Investment zones’ and designated development sites will mean less red tape and tax for businesses

It was announced that the government is in talks with 38 local and mayoral combined authority areas in England to set up new investment zones. The zones will offer targeted and time-limited tax cuts for businesses in a bid to encourage investment and construction and create jobs.

The incentives under consideration for these areas include a full SDLT relief for purchases of land or buildings for new commercial and residential development and zero rate Employer NICs on salaries up to £50,270 per year.

In the investment zones, for build to rent there will 100% first year enhanced capital allowance relief for plant and machinery and accelerated structures and building allowance of 20%.

For designated development sites planning applications will be minimised and where necessary, streamlined.

The investment zones and designated development sites are yet to be determined but Lancashire and Greater Manchester are two of the 38 local authorities.

No timeline has been provided but the Government says it intends to deliver ‘as quickly as possible’.

Stamp Duty Land Tax (SDLT) and the Housing Market

With immediate effect, the government will permanently increase the threshold above which SDLT must be paid on the purchase of residential properties in England and Northern Ireland from £125,000 to £250,000.

Also, the threshold at which first-time buyers begin to pay SDLT will increase from £300,000 to £425,000 and the maximum value of a property on which First Time Buyers’ relief can be claimed will increase from £500,000 to £625,000.

These are permanent measures and are part of the government’s commitment to support home ownership and promote mobility in the housing market, in turn supporting economic growth.

Increased property transactions are also expected to add to residential investment and spending on durable goods.

Some economists have argued though that this will do little to ease the cost of living crisis but fuel an increase in property prices.

Homebuilding and home ownership

The government acknowledged that while planning permission was granted for more than 310,000 homes last year, up 10% on the year before, further reform is still needed.

Therefore, later this autumn, the government will set out its vision to unlock homeownership for a new generation by building more homes in the places people want to live and work and by getting the housing market moving.

It will do this by promoting the disposal of surplus public sector land by allowing departments greater flexibility to reinvest the proceeds of land sales over multiple years. This will encourage the sale of more public land for housing and allow departments and the NHS to reinvest in public services.

Planned rise in corporation tax (CT) will not go ahead   

In the 2021 budget it was announced that for businesses with profits above £250,000 the CT rate would rise to 25% from 19% from April 2023. As predicted, on the election of the new Prime Minister, this policy has now been scrapped.

The government will amend some of the technical provisions for the super-deduction as a consequence of the CT rate being retained at 19% from 1 April 2023. This will ensure that the relief continues to operate as intended.

Annual Investment Allowance (AIA)

From 1 April 2023 AIA for businesses will be permanently set at its highest ever level. This will give 100% tax relief to businesses on plant and machinery investments up to an annual spend of £1m. The measure had previously been temporarily introduced from 1 January 2022 to 31 March 2023.

Off-payroll working rules to be repealed

The 2017 and 2021 reforms to the off-payroll working rules, also known as IR35, will be repealed from 6 April 2023.

Essentially, the position will revert to that in place prior to the introduction of the IR35 rules in both the public and private sectors. From 6 April 2023, workers across the UK providing their services via an intermediary such as a personal service company will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.

This has come as good news to many, as the rules have been subject to widespread criticism from contractors and businesses.

Personal taxes

The 1.25% increase in Employer National Insurance has been cancelled from 6 November and the 1.25% increase in dividend tax rates from April 2023.

Also being cancelled is the planned Health and Social Care Levy – a separate tax which was set to come into force in April 2023.

The 1% cut to the basic rate of income tax is being brought forward to April 2023, 12 months earlier than planned.

Energy Bill Relief Scheme (EBRS)

The EBRS was actually announced by Business Secretary Jacob Rees-Mogg on Wednesday 21 September, 2 days before the budget and it aims to support growth and prevent unnecessary insolvencies.

It is a temporary six-month scheme in Great Britain that will protect businesses and other non-domestic energy users, from rising energy bills this winter by providing a discount on wholesale gas and electricity prices. We understand that the scheme will be reviewed after three months with an option to extend support for “vulnerable businesses” – but as yet it is not known what sectors come under the category.

VAT

Disappointingly, there was little good news for the sector here other than perhaps scrapping duty rises on beer. Post Brexit they have the ability to make significant indirect tax changes – such as lowering VAT rates, temporarily or permanently.  For example, removing the 5% VAT rate on electricity and power would have been popular with the sector but there were no announcements in this area.

If you have any questions regarding the mini budget, please contact your relationship partner or email enquiries@cowgills.co.uk and one of the team will be in touch.