2016 Budget: key property announcements

Practical Law UK Legal Update 5-624-5206 (Approx. 15 pages)

2016 Budget: key property announcements

2016 Budget

On 16 March 2016, the Chancellor of the Exchequer, George Osborne, delivered the 2016 Budget.

This update analyses the key implications for the property industry. For an analysis of other aspects of the 2016 Budget, see Further reading.

Defined terms

The following defined terms are used in this update:

2016 Budget Report: HM Treasury: Budget 2016 (16 March 2016).
HMRC Overview: HMRC: Budget 2016 HMRC overview (16 March 2016).

Taxation

SDLT

Surcharge on "additional" residential properties

The 2015 Autumn Statement and Spending Review announced a surcharge of 3% on stamp duty land tax (SDLT) in respect of purchases of "additional residential properties", such as buy to let properties and second homes, with a value above £40,000. This surcharge was to apply from 1 April 2016. For more information, see Legal update, 2015 Autumn Statement and Spending Review: key property announcements: Surcharge on "additional" residential properties.

In December 2015, the government launched a consultation on the additional 3% charge, see Legal update, SDLT consultation on higher rates for additional residential properties.

The 2016 Budget confirms that the surcharge applies from 1 April, subject to transitional measures. The higher rates of SDLT will apply in England, Wales and Northern Ireland.

The government has made some changes to its original proposals, in the light of the responses made to the consultation. Among these changes are:

The proposed exemption for corporate bodies and funds owning more than 15 residential properties has been removed. This creates a level playing field for taxpayers, but will be a blow to large scale investors.
A purchaser that had to pay the higher rate of SDLT because they bought a new main residence before disposing of their previous main residence, is entitled to a refund of the additional 3% SDLT if they dispose of their previous main residence within 36 months (instead of 18 months).
A purchaser who owns more than one property, who disposes of their main residence, will have 36 months to buy a new main residence before the higher rates apply (assuming they still own additional property that would trigger the higher rates liability). Where the residence was sold before 25 November 2015 (the date of the Spending Review and Autumn Statement), the 36 months runs from that date, not the date of the disposal.

Where the surcharge applies, the SDLT rates for a transaction will be 3% above the current SDLT rates for residential property. This means that the following rates will apply on a progressive "slice" basis (see Practice note, SDLT and residential property):

Chargeable consideration	Applicable SDLT rate
Not more than £125,000	3%*
More than £125,000 but not more than £250,000	5%
More than £250,000 but not more than £925,000	8%
More than £925,000 but not more than £1.5 million	13%
More than £1.5 million	15%

*If the chargeable consideration is less than £40,000, the additional 3% SDLT charge will not apply. However, if the chargeable consideration is £40,000 or more, the total amount (up to £125,000) will be chargeable at 3%.

Property practitioners have been keen to see the detail of how the surcharge will work. For more information on exactly what transactions will be covered by the higher rates charge, and how it will be applied, see Legal update, 2016 Budget: key business tax announcements: Increased SDLT rates for additional residential properties.

(Budget Report, paragraphs 1.125 and 1.126, 2.183, HMRC: Stamp Duty Land Tax: higher rates for purchases of additional residential properties and HMRC: Stamp Duty Land Tax: buying an additional residential property).

Change to commercial SDLT rates

Property that is non-residential, or has a mix of residential and non-residential use is charged to SDLT at different rates from residential land.

Originally, SDLT was charged on all properties under a "slab" system, under which SDLT was levied at a single rate based on the chargeable consideration for a transaction. Following the 2014 Autumn Statement, this approach was changed for residential properties to a "slice" system, under which SDLT is charged at a variety of rates according to the portion of the total consideration falling within each of several bands. This change took effect on 4 December 2014, subject to some transitional provisions. For more information, see:

The government has announced in the 2016 Budget that a similar "slice" approach will apply to non-residential and mixed properties for transactions with an effective date on or after 17 March 2016.

The SDLT rates applicable to non-rent consideration from that date are:

Rate band	Rate
So much of the consideration as does not exceed £150,000	0%
So much as exceeds £150,000 up to £250,000	2%
So much as exceeds £250,000	5%

This means that transactions with non-rent consideration of over £1.05 million will be subject to more SDLT under the new system than they were under the old system.

The government has also announced changes to the SDLT rates in respect of leases of non-residential or mixed residential and non-residential properties, introducing a new 2% band for rents with a net present value of over £5 million.

Net present value of rent	Rate
£0 up to £150,000	0%
Over £150,000 up to £5 million	1%
Over £5 million	2%

For more information on how SDLT is calculated for leases, see Practice note, SDLT and the grant of a lease.

These changes to SDLT apply in England, Wales and Northern Ireland.

Buyers may elect to pay SDLT under the old rules in either of the following cases:

The transaction is effected under a contract substantially performed (see Practice note, SDLT and contracts for the transfer of land: What is substantial performance?) before 17 March 2016.
The transaction is effected under a contract entered into before 17 March 2016 unless:
- the contract is varied, or the rights under the contract are assigned, on or after 17 March 2016;
- the transaction is effected in consequence of the exercise of an option, right of pre-emption or similar right, on or after 17 March 2016; or
- on or after 17 March 2016, there is an assignment, sub-sale or other transaction relating to the whole or part of the subject matter of the contract that results in another person having the right to call for a conveyance of the subject matter. For these purposes, a "conveyance" includes a lease (section 44(10), Finance Act 2003).

(Budget Report, paragraphs 1.179 to 1.183, 2.186 and HMRC: Policy paper: Stamp Duty Land Tax: reform of charging provisions for non-residential property.)

Authorised property funds

In the 2015 Autumn Statement and Spending Review, the government announced a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and make some changes to the SDLT treatment of CoACSs investing in property. For more information, see Legal updates, 2015 Autumn Statement and Spending Review: key property announcements: Authorised property funds and Draft Finance Bill 2016 legislation: key business tax measures.

The government has announced that it has made some minor technical changes since publishing the draft legislation. The amended legislation is expected to be in the Finance Bill 2016.

(Budget Report, paragraph 2.184 and HMRC Overview, paragraph 1.60.)

Reliefs from the 15% rate of SDLT and ATED

As announced at the 2015 Spending Review and Autumn Statement, the scope of the reliefs available from these charges will be extended where a residential property is:

Held for the purposes of an equity release scheme (home reversion plan).
Occupied by certain employees.
Acquired for demolition or conversion into non-residential use.

For more information, see Legal update, 2015 Autumn Statement and Spending Review: key property announcements: Reliefs from the 15% rate of SDLT, Annual tax on enveloped dwellings (ATED) and Legal update, Draft Finance Bill 2016 legislation: key business tax measures.

The government has announced that it has made some minor technical changes to the draft legislation, following consultation. The revised wording is expected to be contained in the Finance Bill 2016 and the changes will come into effect from 1 April 2016.

(Budget Report, paragraph 2.185 and HMRC Overview, paragraph 1.61.)

Capital gains tax (CGT)

The government is cutting the higher rate of capital gains tax (CGT) from 28% to 20% and the basic rate from 18% to 10%. This will take effect for disposals made on or after 6 April 2016. However, the old rates will be kept in place for chargeable gains on residential property. Private residence relief will remain so that an individual’s main home will not be subject to CGT.

As announced in the 2015 Autumn Statement, the government will amend the CGT computations required by non-residents on the disposal of UK residential property by removing, with retrospective effect from 6 April 2015, a double charge that occurs in some circumstances and correcting an omission with effect from 25 November 2015.

The government is also making the submission of a non-resident capital gains tax (NRCGT) return following a disposal of a UK residential property interest by a non-resident optional in two specific circumstances. This relaxation will be backdated to 6 April 2015. For more information, see Legal update, Non-resident CGT: reporting to be made optional in prescribed circumstances.

(Budget Report, paragraphs 1.171 and 2.194.)

Offshore property developers

The government will introduce legislation in the Finance Bill 2016 to ensure that offshore structures cannot be used to avoid UK tax on profits that are generated from developing UK property. By enforcing the international rules on the taxation of trading profits derived from property, the government will level the playing field between UK and offshore developers. Legislation for this measure will be introduced at a later stage of the Finance Bill 2016, following a brief consultation. Anti-avoidance measures will take effect immediately to prevent arrangements to circumvent the rules.

HMRC will also create a task force to focus on offshore property developers. This task force will target offshore structures used to avoid tax on profits and rental income from property development in the UK. The task force aims to achieve a long term improvement in taxpayer compliance.

(Budget Report, paragraphs 1.213, 1.214, 2.94 and 2.95.)

Insurance premium tax (IPT)

The standard rate of insurance premium tax (IPT) will increase from 9.5% to 10% with effect from 1 October 2016. All of the revenue raised from the increase will be invested in flood defences and resilience measures (see Flood defences).

(Budget Report, paragraphs 1.205 and 2.154.)

Property income allowance

From April 2017, the government will introduce a new £1,000 allowance for property income. Individuals with property income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by deducting the relevant allowance.

(Budget Report, paragraphs 1.170 and 2.25.)

Clarification on restricting finance cost relief for landlords

Landlords of residential property are able to claim relief on finance costs. In the July 2015 Budget, the government announced that it would restrict the relief to the basic rate of income tax (see Legal update, July 2015 Budget: key property announcements: Tax reliefs). This change was enacted in section 24 of the Finance (No. 2) Act 2015 (see Practice note, Finance (No. 2) Act 2015: business tax provisions analysis).

Legislation will be introduced in the Finance Bill 2016 to clarify that beneficiaries of deceased persons' estates are entitled to the basic rate tax reduction and to ensure that the basic rate tax reduction is applied and calculated as intended.

(Budget Report, paragraph 2.27 and HMRC: Policy paper: Clarification to finance costs restriction for landlords (16 March 2016).)

Business rates

Small Business Rates Relief

There will be a permanent increase in Small Business Rate Relief (SBRR) from 50% to 100% and an increase in the current thresholds to benefit a greater number of businesses. This means that in England from 1 April 2017:

A business will receive 100% relief if the property has a rateable value of £12,000 or below.
Currently, SBRR gives 50% relief but this has been temporarily doubled until 31 March 2017 for properties with a rateable value of £6,000 or below.
A business will receive tapered relief if the property has a rateable value between £12,000 and £15,000.
Currently, businesses occupying properties with a rateable value of between £6,001 and £12,000 receive tapered relief.

There will also be an increase in the rateable value threshold for the standard business rates multiplier to £51,000 from 1 April 2017, taking more properties in England out of the higher rate.

(Budget Report, paragraph 1.161.)

Change to annual indexation of business rates

From 1 April 2020, the lower Consumer Prices Index (CPI) will be used for the annual indexation of business rates in England instead of the Retail Prices Index (RPI).

(Budget Report, paragraph 1.162.)

Improvement of business rates administration

The government announced that:

It will publish a discussion paper in March 2016 on the introduction of more frequent business rate revaluations in England (at least every three years).
Local authority business rate systems in England will be linked to HMRC digital tax accounts by 2022, so that business rates bills can be managed alongside other taxes. Business rates bills will be standardised and ratepayers will have the option to receive and pay bills online by April 2017.
Once local authority and HMRC systems are linked, the government will consider replacing SBRR with a business rates allowance which would apply to a business's total property portfolio.
Local government will be compensated for the loss of income as a result of the changes to business rates. The impact will be considered as part of the consultation on the implementation of 100% business rate retention in summer 2016.

(Budget Report, paragraph 1.163.)

Other measures

The government also announced that:

Local authorities in England will be allowed to use their discretionary relief powers to support publicly owned public lavatories from 1 April 2018.
A £1,500 business rates discount will be introduced for office space occupied by local newspapers in England for two years from 1 April 2017.
It will publish a summary of responses into the long-term review of business rates in England in March 2016.
100% retention of business rates will be piloted with Liverpool City Region, Greater Manchester and the Greater London Authority. The increased share of business rates will give the Mayor of London additional control of nearly £1 billion of local taxes.

(Budget Report, paragraphs 2.125-2.127 and 2.130.)

Housing

Lifetime ISA

From 6 April 2017, the government will introduce a new Lifetime ISA which can be used to save for retirement or to buy a first home. Adults under the age of 40 will be able to open a new Lifetime ISA and contribute up to £4,000 in each tax year. They will receive a 25% bonus from the government at the end of the tax year on every pound they put in before their 50th birthday.

To benefit from the government bonus, either the funds must be used to buy a first home worth up to a national limit of £450,000 at any time from 12 months after opening the account, or withdrawn when the saver reaches 60 or has been diagnosed with terminal ill health.

For a first home purchase:

The rules will be based on those for the Help to Buy ISA, including that the withdrawal must be for a deposit on a property for the first time buyer to live in as their only residence and not buy-to-let. For more information, see Legal update, March 2015 Budget: key property announcements: Housing.
Where there are two first time buyers buying together, they can each use a Lifetime ISA and each benefit from the government bonus.

The Help to Buy ISA will be open to new savers until 30 November 2019, and open to new contributions until 2029. During the 2017-18 tax year only, those who already have a Help to Buy ISA will be able to transfer those funds into a Lifetime ISA, without funds contributed before 6 April 2017 counting towards the Lifetime ISA limit. It is also possible to continue saving into both, although it will only be possible to use the government bonus from one of the accounts to buy a first home.

Withdrawals can be made at any time for other purposes, but the bonus element of the fund plus any interest or growth on it will have to be returned to the government and a 5% charge will also be applied. The government is considering whether to allow withdrawals, including the bonus, for other specific life events and whether to allow borrowing against the ISA without incurring a charge if the borrowed funds are fully repaid.

The overall annual ISA limit will also be increased to £20,000 from 6 April 2017. Any contributions to a Lifetime ISA will sit within the overall £20,000 ISA contribution limit. The government will bring forward legislation to enact the Lifetime ISA in autumn 2016, after discussions with the industry.

(Budget Report, paragraphs 1.108-1.112 and 2.50, HM Treasury: Lifetime ISA fact sheet (16 March 2016) and HM Treasury: Design of the Lifetime ISA: technical note.)

Further measures to deliver more housing

In the 2015 Autumn Statement, the government announced its commitment to delivering 400,000 affordable new homes by the end of the decade, see Legal update, 2015 Autumn Statement and Spending Review: key property announcements: Housing. This includes 200,000 Starter Homes and 135,000 Help to Buy Shared Ownership properties. To deliver on these plans, the government has announced:

The launch of the Starter Homes Land Fund prospectus today. This prospectus invites local authorities to access the £1.2 billion of funding to remediate brownfield land to deliver Starter Homes. Essentially, Starter Homes are new build homes open to purchase by first time buyers under 40, at 20% off the market price. For more information, see Legal update, 2015 Autumn Statement and Spending Review: key property announcements: Starter Homes.
The government will launch the Help to Buy: Shared Ownership Prospectus in April. The prospectus will invite private developers to bid for funding to build shared ownership homes. For more information on Help to Buy: Shared Ownership, see Legal update, 2015 Autumn Statement and Spending Review: key property announcements: Help to Buy: Shared Ownership.
£250 million of capital spending will be brought forward to 2017-18 and 2018-19 to enable the delivery of 13,000 affordable homes two years early.

(Budget Report, paragraphs 1.117, 1.118, 2.297 and 2.299.)

Community-led housing

The government will introduce higher rates of SDLT on purchases of additional residential properties from 1 April 2016. (For more information, see SDLT.)

The government will provide £60 million from the revenue raised to enable community-led housing developments (including through Community Land Trusts) in rural and coastal communities, where the impact of second homes is particularly acute. The South West will receive around £20 million of this funding.

(Budget Report, paragraphs 1.127 and 2.183.)

Homelessness

To tackle the issue of homelessness, the government will:

Invest £100 million to deliver low-cost 'second stage' accommodation places for rough sleepers leaving hostel accommodation and domestic abuse victims moving on from refuges.
Invest £10 million over two years in initiatives to support ways to prevent and reduce rough sleeping, particularly in London, building on the success of the No Second Night Out initiative.
Double funding for the Rough Sleeping Social Impact Bond announced at the 2015 Autumn Statement and Spending Review, from £5 million to £10 million, to drive innovative ways of tackling entrenched rough sleeping.
Help rough sleeping EU migrants to return to their home countries.

(Budget Report, paragraphs 1.129 and 2.302.)

The measures have been criticised by housing charities as a short-term fix that ignores the long-term problem of welfare cuts and lack of affordable housing.

Market transparency

To support the government’s commitment to provide more housing, there will be a consultation on options for increasing transparency in the property market. This will include increasing the visibility of information relating to options to purchase or lease land.

(Budget Report, paragraph 1.120.)

Process of buying homes

The government will shortly publish a call for evidence looking at the process of buying a home.

(Budget Report, paragraph 2.345.)

Transport and infrastructure

National Infrastructure Commission

The government set up the new National Infrastructure Commission (Commission), chaired by Lord Adonis, to produce an assessment of the country's future infrastructure needs and priorities. The Commission has started work on a National Infrastructure Assessment.

(Budget Report, paragraph 1.230 and 1.231.)

In the shorter term, the government asked the Commission to report on London transport and Northern connectivity. The Commission issued these two reports in March 2016 and the government has accepted the Commission's recommendations. For more details, see Crossrail 2 and HS3 and northern transport connectivity.

In the 2016 Budget, the government also announced that the Commission will carry out the following two new infrastructure studies:

An assessment of how the UK can become a world leader in 5G deployment and how it can take early advantage of the potential benefits of 5G services. This review will include a case study of the south-west of England.
Proposals for unlocking growth, housing and jobs in the Cambridge-Milton Keynes-Oxford corridor.

(Budget Report, paragraph 1.233.)

The government is consulting on the structure, governance and operation of the Commission and intends to introduce legislation to put the Commission on a statutory footing. The public consultation closes on 17 March 2016.

(Budget Report, paragraph 1.234.)

Crossrail 2

On 11 March 2016, the Commission published a report, Transport for a world city, on London's future transport needs. The report backed Crossrail 2 and recommended that:

Clear proposals are identified to significantly reduce and phase costs.
A funding package is developed that involves London funding more than half of the cost of the project.

For more information, see Legal update, National Infrastructure Commission: transport for a world city.

In the 2016 Budget, the government confirmed that, in response to Transport for a world city, it:

Accepts the Commission's recommendations and gives the green light to Crossrail 2.
Will provide £80 million to help fund development of Crossrail 2.
Will ask Transport for London to match that contribution.
Intends to deposit a hybrid bill within this parliament.

(Budget Report, paragraphs 1.27, 1.232, 1.241, 1.333, 1.334 and 2.270.)

HS3 and northern transport connectivity

On 15 March 2016, the Commission published a report on transport needs in the North of England, High speed north, which backed High Speed 3 (HS3). For more information, see Legal update, National Infrastructure Commission: High speed north.

In response to High speed north, the government confirmed that it will provide £300 million of funding to improve northern transport connectivity, including:

Giving the green light to HS3 between Leeds and Manchester. £60 million will be provided to develop plans for both the Leeds-Manchester route by 2017 and to improve transport connections between cities of the North.
Accelerating the upgrade of the M62 to a four-lane smart motorway.
Developing the future transformation of east-west road connections, including:
- a new Trans-Pennine tunnel under the Peak District between Sheffield and Manchester; and
- options to enhance the A66, A69 and the north-west quadrant of the M60.
The government will allocate £75 million, including to develop a business case for these schemes by the end of the year.
Accelerating the development of other critical road projects in the North.

(Budget Report, paragraphs 1.27, 1.232, 1.241, 1.291 and 2.265.)

Rail

The government has welcomed the recommendations of the Shaw Report on the future structure and financing of Network Rail which was published today. The Shaw Report includes recommendations for:

Greater devolution to the routes.
The creation of a new, dedicated northern route.

The government will respond to the Shaw Report in full later this year.

The government has also welcomed the report of the Competition and Markets Authority (CMA) on increasing competition in railways, Competition in passenger rail services in Great Britain, which was published on 8 March 2016. The government will work with the CMA to explore how their recommendations could be implemented as part of the wider reform programme arising from the Shaw Report.

(Budget Report, paragraphs 1.240, 2.276 and 2.343.)

Roads

The government:

Has launched the Second Roads Investment Strategy to determine the investment plans for the period from 2020-21 to 2024-25 (Budget Report, paragraphs 2.262 and 1.236).
Is allocating £151 million from the Local Majors Fund in the first round of allocation and is launching the bidding process for the second tranche of funding. The Local Majors Fund is designed to fund transformative local transport projects (Budget Report, paragraphs 1.238, 1.308, 1.319, 1.327, 1.344, and 2.269).
Has announced how the Pothole Action Fund of £50 million will be allocated across England in 2016-17 to enable local authorities to fill nearly a million potholes (Budget Report, paragraphs 1.239, 1.292, 1.308, 1.322, 1.327, 1.344 and 2.272).
Will provide a further £130 million to repair roads and bridges damaged by Storms Desmond and Eva (Budget Report, paragraphs 1.239, 1.302 and 2.336).

Thames Estuary 2050 Growth Commission

The government has asked Lord Heseltine to lead the Thames Estuary 2050 Growth Commission (Growth Commission) to develop a long-term vision and delivery plan for North Kent, South Essex and East London up to 2050. The Growth Commission will:

Examine how the area can develop, attract and retain skilled workers.
Look at how to make the most of opportunities from planned infrastructure such as the Lower Thames Crossing.
Report back at Autumn Statement 2017 with a clear and affordable delivery plan.

(Budget Report, paragraphs 1.342 and 2.311.)

National Infrastructure Delivery Plan

The government will shortly publish a National Infrastructure Delivery Plan. This will set out details of over £100 billion of public sector investment in infrastructure across this parliament (Budget Report, paragraph 2.280.)

Cathedral repairs fund

The government will:

Provide £20 million throughout 2016-17 and 2017-18 to extend the First World War Centenary cathedral repairs fund.
Establish a review to assess the maintenance and repair pressures on England’s churches and cathedrals and examine how the sector can become more financially sustainable.

(Budget Report, paragraph 2.254.)

Flood defences

There will be an additional boost to spending on flood defence and resilience of over £700 million by 2020-21. This will be funded by an increase in insurance premium tax (see Insurance premium tax (IPT)).

£150 million will be invested in flood defence schemes in Leeds, Cumbria, Calder Valley and York. The government will also invest up to £25 million in flood defences in Carlisle once the Environment Agency has concluded a review of its needs, and will provide funding to support delivery of the final phase of the Leeds Flood Alleviation Scheme in later years subject to business case approval.

(Budget Report, paragraphs 1.242, 1.301 and 2.336.)

Enterprise Zones

The government will create a new MarineHub enterprise zone in Cornwall. It will also create new zones in Brierley Hill in Dudley, in Loughborough and Leicester and extend the Sheffield City Region enterprise zone, subject to the necessary business case approvals and local agreements. All enterprise zones will be able to offer enhanced capital allowances for eight years from the establishment of relevant sites.

The government will also support proposals for an enterprise zone at Port Talbot by offering enhanced capital allowances to investors, subject to agreement with the Welsh Government on the boundaries within which enhanced capital allowances will be available.

(Budget Report, paragraphs 1.283, 2.312 and 2.313.)

Privatisation of the Land Registry

The government will shortly consult on options to move the operations of the Land Registry to the private sector.

This is in line with its announcement in the 2015 Autumn Statement and Spending Review that it was re-opening the debate about the future of the Land Registry, as part of its drive to generate £5 billion from asset sales by March 2020. This was a u-turn from the coalition government's stance when that government confirmed that the Land Registry would not be privatised (see Legal update, 2015 Autumn Statement and Spending Review: key property announcements: Asset management: Land Registry).

(Budget Report, paragraph 1.77.)

2016 Budget: key property announcements | Practical Law