2014 Budget: property implications

Practical Law UK Legal Update 6-561-2493 (Approx. 15 pages)

2014 Budget: property implications

2014 Budget

On 19 March 2014, Chancellor of the Exchequer, George Osborne, delivered the 2014 Budget.

This update analyses the key implications for the property industry. For an analysis of other aspects of the 2014 Budget, see Practical Law: 2014 Budget.

The changes to savings and pensions will grab the headlines. However, most property practitioners will find the following of interest:

The extension of the Help to Buy equity loan scheme to March 2020 and the continuation of the mortgage guarantee scheme to 31 December 2016.
The reform of the planning system to include a review of the Town and Country Planning (General Permitted Development) Order 1995 (SI 1995/418).
The 15% SDLT rate applied to residential properties, purchased by certain non-natural persons, will be applied to properties valued above £500,000, with effect from 20 March 2014.
The increase in funds available for flood repairs.
The housing regeneration measures intended to improved the lack of housing in the South East, the principal measure of which is the creation of an Urban Development Corporation for a new garden city in Ebbsfleet, Kent.

The 2013 Budget led to concerns that house prices could rise further as a result of the Help to Buy scheme, leading to the creation of another housing bubble. The 2014 Budget will not reduce those concerns. Indeed, in London, prices are increasingly steadily on a weekly basis. No attempt was made to change the residential SDLT bands, which may be an intentional ploy to try and contain house prices.

Although the Ebbsfleet proposals for 15,000 new homes will be welcome by those seeking additional housing in Kent, this is a drop in the ocean considering the demand for housing in the South East.

Interestingly, there is no mention of increasing housing stock in the north of the country or indeed elsewhere though there are proposals to establish a £150 million fund to kick start the regeneration of large housing estates.

Defined terms

Budget Report: HM Treasury: Budget 2014 (19 March 2014).
Infrastructure delivery update: HM Treasury: National Infrastructure Plan: finance update (March 2014).
Overview: Overview of Tax Legislation and Rates (19 March 2014).
HMRC: HM Revenue & Customs.
SDLT: stamp duty land tax.

Taxation

High value UK residential property held by non-natural persons

In the 2012 Budget, the government announced a number of measures dealing with the taxation of high value residential properties held by certain non-natural persons (NNPs), such as limited companies (see Legal update, 2012 Budget: property implications).

In brief, the measures proposed in the 2012 Budget were:

A Stamp Duty Land Tax (SDLT) rate of 15% on the acquisition of high value residential property by NNPs. This came into effect for transactions with an effective date on, or after, 21 March 2012 (see Practice note, SDLT and residential property: the top rate of tax: 15% SDLT rate for acquisitions by "non-natural persons").
An annual tax on "enveloped" dwellings (ATED), originally referred to as the annual residential property tax, or ARPT (see Practice note, Annual tax on enveloped dwellings (ATED)).
Capital Gains Tax (CGT) at 28% on any gain made on a disposal by an NNP (see Practice note, Capital gains tax charge relating to annual tax on enveloped dwellings (ATED)).

In the 2014 Budget, the government announced that all of these measures would be extended to affect residential properties of lower values than were previously caught.

Extension of 15% SDLT rate for residential purchases by NNPs

When introduced, the 15% SDLT rate for residential properties purchased by NNPs applied to properties with a value over £2 million (see Practice note, SDLT and residential property: the top rate of tax: 15% SDLT rate for acquisitions by "non-natural persons").

In the 2014 Budget, the government announced that the 15% rate will be extended to properties with a value over £500,000 for transactions with an effective date on, or after, 20 March 2014. The "effective date" is usually the date of completion, but the government has confirmed that transitional measures will apply the existing SDLT threshold to contracts entered into before 20 March 2014 (subject to some exceptions).

Legislation implementing this change will be in the Finance Bill 2014.

(Budget Report, paragraphs 1.194 and 2.184, Overview, paragraph 1.35 and HMRC: Taxation of high value UK residential property held by certain non-natural persons (19 March 2014).)

ATED extended in two stages

The Finance Act 2013 introduced the ATED for certain NNPs owning UK residential property with a value of more than £2 million (see Practice note, Annual tax on enveloped dwellings (ATED)).

In the 2014 Budget, the government announced two extensions to the ATED regime:

From 1 April 2015, a new band of ATED will come into effect, covering properties with a value greater than £1 million, but not more than £2 million. For this band, the annual charge will be £7,000. In the first year of this band's existence, returns relating to this tax band will not be required until 1 October 2015, with payment to be made by 31 October 2015.
From 1 April 2016, another new band will come into force for properties with a value greater than £500,000, but not more than £1 million. The annual charge for these properties will be £3,500.

The ATED charges will be annually indexed by reference to the Consumer Prices Index.

Legislation effecting these changes will be contained in the Finance Bill 2014.

The government has also indicated that it intends to consult on ways of simplifying the administration of ATED in the summer of 2014.

(Budget Report, paragraphs 1.195, 2.183 and 2.184, Overview, paragraph 1.36 and HMRC: Taxation of high value UK residential property held by certain non-natural persons (19 March 2014).)

Capital Gains Tax

Enveloped properties

Special CGT treatment applies to disposals by NNPs of high value UK residential property that are subject to ATED (see Practice note, Capital gains tax charge relating to annual tax on enveloped dwellings (ATED)).

The 2014 Budget announced extensions of the ATED-related CGT charge, to mirror the extensions of ATED itself. All NNPs affected by the new ATED bands will also be subject to CGT on disposal of the properties held, at a rate of 28%. The extension of the ATED-related CGT charge will take effect:

From 6 April 2015 for properties worth more than £1 million and not more than £2 million, with the charge applying only to the part of the gain that accrued on or after that date.
From 6 April 2016 for properties worth more than £500,000 and not more than £1 million, with the charge applying only to the part of the gain that accrued on or after that date.

The balance of any gains will continue to be treated as at present.

Legislation for these changes to CGT will be introduced in the Finance Bill 2015.

(Budget Report, paragraphs 1.195 and 2.184 and HMRC: Taxation of high value UK residential property held by certain non-natural persons (19 March 2014).)

PPRR: confirmation of 2013 Autumn Statement announcement

The 2014 Budget provides confirmation that the government will legislate to reduce the final period exemption for principal private residence relief (PPRR) (which gives relief from CGT on the disposal of an individual's only or main residence). The exemption period will be reduced from 36 months to 18 months from 6 April 2014. This measure was originally announced in the 2013 Autumn Statement (see Legal update, 2013 Autumn Statement: property implications: CGT principal private residence relief: final period exemption).

(Budget Report, paragraphs 2.81 and 2.82 and Overview, paragraph 2.9.)

SDLT: property authorised investment funds seeding relief consultation

As part of its investment management strategy (see Legal update, UK investment management strategy launched), the government will consult on the introduction of an SDLT relief for the seeding of property authorised investment funds and, in addition, the SDLT treatment applicable to co-ownership authorised contractual schemes (as to which, see Practice note, Authorised contractual schemes: tax).

A seeding relief will provide relief from SDLT where property is transferred from one vehicle to another without any real change in the underlying ownership, thereby providing property investors with greater flexibility in their investment structuring. Given the withdrawal of unit trust seeding relief some years ago because of its abuse, HMRC will want to be sure that this does not happen again.

It is to be hoped that the consultation will conclude that transfers of units in co-ownership authorised contractual schemes do not attract SDLT, thereby providing equivalent treatment to transfers in overseas property unit trusts.

(Budget Report, paragraph 2.185 and Overview, paragraph 2.19.)

Housing

Help to Buy: equity loan and mortgage guarantee

Help to Buy offers two schemes to assist both first-time buyers and those seeking to move home to buy a residential property for a purchase price of £600,000 or less. The schemes are:

Equity loan scheme, which launched on 1 April 2013.
Mortgage guarantee, which launched on 8 October 2013.

The schemes are only available where each of the following conditions are fulfilled:

The home buyers meet the lenders' appropriate tests to ensure they can pay back the mortgage, as well as passing their chosen lender's credit and affordability checks.
The mortgage is a capital repayment mortgage, and not interest-only.
The property will be occupied by the individual or individuals taking out the mortgage. The schemes are not available to home buyers purchasing through incorporated companies.

There are no income cap constraints.

The Help to Buy schemes should not be confused with the government's NewBuy scheme, which remains in place (see Legal update, NewBuy scheme launched).

(Budget Report, paragraphs 1.140 and 2.15.)

For more information on Help to Buy, see Legal updates:

Equity loan scheme

The equity loan scheme is restricted to those wishing to buy a new build home in England. Wales, Scotland and Northern Ireland have their own schemes.

The equity loan scheme was initially intended to operate for three years, until 31 March 2016. The government announced that the equity loan scheme will be extended to March 2020, anticipating that this will help an additional 120,000 people buy a new build house.

Mortgage guarantee scheme

The mortgage guarantee scheme is available for both new builds and existing properties across the UK. It will continue, as originally intended, to 31 December 2016.

Support for Mortgage Interest

The government has announced that Support for Mortgage Interest (SMI) will continue to March 2016.

SMI provides support with mortgage interest payments for homeowners receiving certain income-related benefits. SMI is currently available after 13 weeks at 100% of eligible mortgage interest on mortgages of up to £200,000. SMI has been extended several times since it was first introduced and was due to end in March 2015.

For more information on SMI, see Practice note, Help for residential borrowers struggling with mortgage repayments: Where can the borrower get financial help?.

(Budget Report, paragraphs 1.186 and 2.101.)

Right to Build

The government announced it will consult on creating a new Right to Build for those who want to build their own home. The Right to Build will:

Give custom builders a right to a plot from councils.
Provide a £150 million repayable fund to help supply up to 10,000 serviced plots for custom builds.

The government will also seek to make the Help to Buy equity loan scheme available for custom builds.

(Budget Report, paragraphs 1.142 and 2.21.)

Right to Move

The Department for Communities and Local Government announced it will consult on the design of a "right to move" scheme for social tenants to increase their mobility for work related reasons. Options will include giving such tenants priority when a new social house becomes available and reserving a pool of social houses to enable such tenants to move across local authority boundaries.

(Budget Report, paragraph 2.24.)

Funding for social housing estates

The government will establish a £150 million fund to stimulate the regeneration of large social housing estates through repayable loans. Private sector developers (working with local authorities on estates that might benefit) will be invited to bid shortly.

(Budget Report, paragraphs 1.143 and 2.19.)

Development and regeneration

Strategic Land and Property Review

The Government Property Unit has concluded its Strategic Land and Property Review. The review identified scope to generate £5 billion from government land and property to create opportunities for housing and economic development. A significant amount of this government land will be brownfield.

Government departments have already committed to reforms which will release £3.5 billion of land and property. Ongoing operational reviews will identify another £1.5 billion.

By the 2014 Autumn Statement, the government aims to quantify its housing and growth ambitions for this new surplus land programme.

(Budget Report, paragraphs 1.73 and 1.74.)

Builders Finance Fund

To assist small and medium enterprises, the government announced it will create a £500 million Builders Finance Fund. The fund will provide loans to developers to unlock 15,000 housing units which have been stalled due to difficulty accessing finance.

(Budget Report, paragraphs 1.141 and 2.20.)

Regeneration schemes

Ebbsfleet

The government will support a new Garden City at Ebbsfleet. Ebbsfleet has capacity for up to 15,000 new homes on brownfield land.

The government will:

Form an Urban Development Corporation (in consultation with local MPs, councils and residents) to deliver the new garden city at Ebbsfleet.
Make up to £200 million of infrastructure funding available.

The government will also publish a prospectus by Easter 2014 detailing how local authorities could develop their own, locally-led proposals for establishing new garden cities.

(Budget Report, paragraphs 1.145, 1.146, 2.16 and 2.26.)

Barking and Brent Cross

The government will work with the:

Greater London Authority (GLA) to produce proposals for extending the Gospel Oak to Barking line to Barking Riverside to unlock up to 11,000 new homes.
London Borough of Barnet and the GLA to consider proposals for the Brent Cross regeneration scheme (subject to value for money and affordability).

(Budget Report, paragraphs 1.144, 2.17 and 2.18.)

Businesses

Capital allowances: annual investment allowance

In the Finance Bill 2014, the government will increase the current temporary maximum annual investment allowance (AIA) from £250,000 to £500,000 for all qualifying investment in plant or machinery made on, or after, 1 April 2014. This increase will last until 31 December 2015.

The legislation will also extend the period of the temporary increase. These changes will have effect:

From 1 April 2014 to 31 December 2015 for corporation tax.
From 6 April 2014 to 31 December 2015 for income tax.

The annual investment allowance replaced first year allowances and was introduced in 2008.

(Budget Report, paragraph 1.102 and Overview, paragraph 1.20.)

Business premises renovation allowance

Following a review of the business premises renovation allowance, the government announced in the 2013 Autumn Statement that it intended to introduce measures in the Finance Bill 2014 to simplify the scheme (see 2013 Autumn Statement: property implications: Business premises renovation allowance).

In the 2014 Budget the government confirmed that legislation will be introduced in the Finance Bill 2014 to clarify the type of expenditure that qualifies for relief under the business premises renovation allowance.

(Budget Report, paragraph 2.111 and Overview, paragraph 1.28 and TINN A44.)

Flooding

Increase in funds available for flood repairs

A further £140 million has been allocated for repair and restoration of flood defences which were damaged in the winter flooding 2013-14.

(Budget Report, paragraph 1.133.)

It is not yet clear whether:

This £140 million will be allocated to the Environment Agency to decide on how to spend it.
All of the £140 million will be available in the fiscal year 2014-15, or partly delayed until 2015-16 (Budget Report, Table 2.1).
There will be conditions imposed on how this money can be spent.

This funding comes on top of the extra government money (for emergency repairs and maintenance as a result of flooding) which was announced in Parliament by the Secretary of State for Communities and Local Government on 6 February 2014. This consisted of:

£30 million in the fiscal year 2013-14.
£100 million in the fiscal year 2014-15.

Existing schemes for homes and businesses

Other schemes have been introduced to assist homeowners and businesses affected by the winter flooding. An outline of these was issued in February 2014. They include:

The Repair and Renew Grant. Capital payments of up to £5,000 to homeowners and businesses who were flooded to enable them to fund flood resilience or flood resistance measures to reduce further risk. Relevant local authorities will decide how to distribute this money. Launch is expected on 1 April 2014.
Council Tax discount for homeowners. Funding of up to £4 million is available to local authorities who wish to fund relief from council tax for homeowners who were flooded. Each local authority will determine the conditions of their scheme. In theory, the money set aside should be enough to offer at least three months full rebate, but local authorities may decide to allocate it differently.
Business Rates flooding relief. Local authorities can offer discretionary relief from business rates, on terms that they decide for their area. The government will reimburse that rate relief in full for a maximum of three months for properties that fit the eligibility criteria, even if the business was back up and running before the three months elapsed. Local authorities may choose to offer relief for longer.
The Business Support Scheme. This was announced on 17 February 2014. It only applies to England. £5 million has been allocated from central government funds to be made available to local authorities where businesses have been affected by coastal and inland funding since 1 December 2013. The local authority must decide the terms on which the money is allocated (for example, the purpose of any grant and its maximum size). The intention behind the scheme is to help small and medium-sized businesses who have been affected by flooding and suffered a significant loss of trade as a result.

There are separate funding schemes available to local authorities to offset some of the costs incurred in dealing with the flooding and its aftermath. These include applications under:

The Bellwin Scheme.
The Severe Weather Recovery Scheme. The first tranche of this scheme (announced in February 2014) made £3.5 million available and the second tranche made a further £3 million available (announced in March 2014) for communities (there was additional money offered for highway repairs). The date of the flooding determines which tranche to apply under.
The Farming Recovery Fund.

For more details, see Legal update, Flood supports scheme guidance published in respect of the winter 2013-14 flooding.

Energy and buildings

Zero carbon homes

In the 2013 Budget, the government confirmed its aim to achieve zero carbon new homes in England by 2016.

On 6 August 2013, the Department for Communities and Local Government published a consultation on the various options for Allowable Solutions for zero carbon homes (see Legal update, Government consults on allowable solutions for zero carbon homes). The consultation closed on 15 October 2013.

Allowable Solutions is the mechanism that will enable house builders to meet part of the 2016 zero carbon target for new homes through a variety of off-site carbon abatement measures (such as paying into a carbon abatement fund).

In the 2014 Budget, the government announced that it will shortly publish its response to the consultation.

(Budget Report, paragraph 2.23.)

Shale gas

The government has confirmed that the draft legislation relating to a new tax regime for onshore oil and gas exploration (shale gas) that it consulted on in December 2013 as part of the Draft Finance Bill 2014 will not be changed when it is included in the final version of the Finance Bill 2014 that will be published on 27 March 2014.

(Overview of Tax Legislation and Rates, paragraph 1.77.)

For more information, see:

Planning reform

The planning system in the UK is still considered to be cumbersome, expensive and bureaucratic. To address these issues the government is continuing with a number of measures to improve and streamline the planning system.

(Budget Report, paragraphs 1.147 and 2.249-2.252.)

Commercial permitted development and retail

Under the Town and Country Planning Act 1990 (TCPA 1990), planning permission is required for the carrying out, on land, of any development (section 57(1), TCPA 1990).

Development is defined as the "carrying out of building, engineering, mining or other operations in, on, over or under the land or the making of any material change in the use of any buildings or other land" (section 55(1), TCPA 1990).

The basic requirement for planning permission is modified nationally by the Town and Country Planning (General Permitted Development) Order 1995 (SI 1995/418) (GPDO 1995). The GPDO 1995 grants planning permission (known as permitted development) for certain types of minor development.

The government has announced that, to support businesses and households further, the GPDO 1995 will be reviewed.

The approach will be based on a three-tier system to decide the appropriate level of permission:

Using permitted development rights for small scale changes.
Prior approval rights for development requiring consideration of specific issues.
Planning permission for large scale development.

The government's review of the GPDO 1995 will include consulting on creating a much wider retail use class (excluding betting shops and payday loan shops). For background information on the current use classes, see Practice note, Town and country planning: changes of use not requiring specific planning permission.

The government will also consult on introducing greater flexibility for businesses to expand, including allowing changes to car parks, loading bays and non-retail facilities where there is little impact on local communities.

(Budget Report, paragraphs 1.147 and 2.249.)

Change of use

The government has already made a number of changes to the GPDO 1995 to allow more flexibility between use classes, see Legal updates:

The government has announced that it will consult on specific change of use measures including greater flexibility for change of use to residential from commercial uses such as warehouses, light industrial or certain sui generis buildings.

(Budget Report, paragraph 2.250.)

Judicial review reform

On 6 April 2014, a new planning court to fast track disputes (including large construction projects) will be launched. For background information, see Legal update, Criminal Justice and Courts Bill 2013-14 and government response to judicial review reform consultation published.

(Budget Report, paragraph 2.251.)

Nationally significant infrastructure planning regime review

The government is committed to making the planning system work for major infrastructure projects and will shortly publish the outcome of its consultation on the nationally significant infrastructure planning regime. For details of the consultation, see Legal update, Review of nationally significant infrastructure planning regime.

For background information on nationally significant infrastructure projects, see Practice note, Planning Act 2008: planning applications for nationally significant infrastructure projects.

(Budget Report, paragraph 2.252.)

Infrastructure

On 19 March 2014, the government published the Infrastructure delivery update, following its publication of an updated National Infrastructure Plan in December 2013 (see Legal update, National Infrastructure Plan 2013: property aspects).

The Infrastructure delivery update analyses the extent and nature of the potential financing opportunities in UK infrastructure. The intention is to make the financing opportunities clearer and more transparent for investors.

In addition, the UK Regulators Network (UKRN) has been created with the intention of assisting efficient multi-sector infrastructure investment projects. Essentially, the chief executives of the UK's economic regulators have joined together to launch the UKRN, which is tasked with improving coordination across regulated sectors to enhance investment and efficiency for the benefit of consumers.

The infrastructure items that will be likely to be of most interest to property practitioners are as follows:

Wales. The government will shortly take forward a Wales Bill that will devolve new tax and borrowing powers to Wales, enabling the Welsh government to raise more of the money it spends and providing it with further tools to support growth in the Welsh economy. The Draft Wales Bill was laid before Parliament on 18 December 2013 (see Legal update, Draft Wales Bill laid before Parliament).
In advance of implementing these new powers, the government has also agreed that the Welsh government can use existing borrowing powers to begin investing in improvements to the M4.
(Budget Report, paragraph 1.149.)
Greater Cambridge. The government will commit £100 million to Greater Cambridge until 2019-20 to support their transport and infrastructure proposals through a gain share mechanism.
(Budget Report, paragraph 1.150 and 2.244.)
Merseyside Gateway Bridge. In 2012, the government introduced the UK Guarantees scheme, to avoid delays to investment in UK infrastructure projects by providing a government backed guarantee to investors. The government has now approved a UK Guarantee for up to £270 million to support the raising of debt finance for the Mersey Gateway Bridge.
(Budget Report, paragraph 1.137 and 2.248.)
A1 Newcastle to Edinburgh. The government has offered to extend the feasibility study on possible improvements to the A1 north of Newcastle further north into Scotland, if the Scottish government will match fund the costs of this study.
(Budget Report, paragraph 2.246.)
Potholes. The 2014 Budget provides an extra £200 million, across the UK, to set up a potholes challenge fund. This emergency funding set aside by the government will allow local authorities to repair up to 3.2 million potholes following the recent severe weather.
(Budget Report, paragraph 1.134.)

High Speed 2

The delivery of High Speed 2 (HS2) continues to be a priority for the government. The hybrid bill was deposited in Parliament in November 2013 (see Legal update, HS2 Phase One hybrid Bill published) and on 17 March 2014, the new chairman of HS2 Ltd, David Higgins, published his report DfT: HS2 Plus: A report by David Higgins (March 2014). The report reviews the progress of HS2 so far, the ongoing development and plans for the future. In response, the government has commissioned HS2 Ltd to develop proposals for accelerating the project and opening the line to Crewe by 2027, 6 years earlier than planned. A substantial redevelopment of Euston Station is also being investigated (Budget Report, paragraph 1.136).

For more information see:

Fund to repair cathedrals

To recognise the historical significance of British cathedrals, and the part they will play in forthcoming remembrance activities to commemorate the First World War, the government will provide £20 million in a grant scheme for repairs.

(Budget Report, paragraph 1.138.)

Enterprise zones

Enhanced capital allowances

Provided that certain conditions are met, enhanced capital allowances (ECAs) are available for companies incurring expenditure between 1 April 2012 and 31 March 2017 on plant and machinery for use primarily in designated assisted areas within Enterprise Zones. For more information, see Legal update, First-year allowances in enterprise zones: draft Finance Bill 2012 and Legal update, 2012 Budget: key business tax announcements.

In the 2014 Budget the government announced that the Finance Bill 2014 will extend the period in which ECAs are available in Enterprise Zones by three years until 31 March 2020.

(Budget Report, paragraphs 1.148 and 2.108.)

(Overview, paragraph 1.30 and TIIN A52.)

Business rates discounts

Regulations came into force on 31 March 2012 in England which provided a 100% business rates discount for a five year period, up to state aid de minimis levels, for businesses that move into Enterprise Zones before April 2015. For more information, see Legal update, Government confirms details of business rates discounts in Enterprise Zones (England).

In the 2014 Budget the government announced that it will extend the deadline by which businesses need to move into an Enterprise Zone in order to claim a business rates discount by three years until 31 March 2018.

(Budget Report, paragraphs 1.148 and 2.186).

Rural and agricultural land

Rural Fuel Rebate Scheme extension

The government has submitted an application to the European Commission for 17 of the most rural areas in mainland UK to receive a 5 pence per litre fuel duty discount. For details on the Fuel Rebate Scheme, see Legal update, 2013 Autumn Statement: property implications.

(Budget Report, paragraph 2.150.)

Capital gains tax: business asset roll-over relief for entitlements under the Basic Payment Scheme

The government will include payment entitlements under the Basic Payment Scheme (the new agricultural subsidy to be introduced as part of the Common Agricultural Policy reform) within the business asset roll-over relief classes of qualifying assets in the Finance Bill 2014. Payment entitlements under the Basic Payment Scheme will be eligible for CGT rollover relief on transfer. These changes will be retrospective and take effect from 20 December 2013.

Payment entitlements under the current Single Payment Scheme are eligible, and have been included in the classes of assets eligible for CGT roll-over relief, since 22 March 2005. The Single Payment Scheme will cease in 2014 with new payment entitlements being allocated to farmers under the replacement scheme, the Basic Payment Scheme.

This announcement ensures that farmers are not disadvantaged by changes to the European Union’s agricultural subsidy scheme.

For details on the Basic Payment Scheme, see Practice note, Common Agricultural Policy reform: overview.

(Budget Report, paragraph 2.84 and Overview, paragraph 1.19 and A30.)

2014 Budget: property implications | Practical Law