The Budget 2008 - Property and Stamp Duty Land Tax

12.03.08

Capital Allowances: Industrial Buildings Allowances, Enterprise Zone Allowances and Agricultural Buildings Allowances

Legislation will be introduced in Finance Bill 2008 to give effect to the phased withdrawal of industrial buildings allowances ("IBAs") and agricultural buildings allowances ("ABAs") that was announced in Budget 2007, and to the withdrawal of enterprise zone allowances ("EZAs") that was announced on 17 December 2007.

The annual writing down allowances ("WDAs"), historically 4%, which are available in respect of industrial and agricultural buildings will reduce each year until final abolition in the tax year 2011/12. EZAs, which normally take the form of a 100% first year allowance (or alternatively 25% annual WDAs) will generally remain available until abolition, also in the tax year 2011/12.

An anti-avoidance rule is also to be introduced to limit WDAs on a time-apportioned basis on tax-driven connected party transfers of property qualifying for IBAs.

The first phase of the gradual withdrawal of WDAs for industrial and agricultural buildings (reduction from 4% to 3%) will have effect for chargeable periods ending on or after 1 April 2008 for corporation tax payers and 6 April 2008 for income tax payers.

The withdrawal of EZAs will have effect on and after 1 April 2011 for corporation tax payers and 6 April 2011 for income tax payers.

Capital Allowances: Industrial Buildings Allowances, Enterprise Zone Allowances and Agricultural Building Allowances - budget notice
Capital Allowances: Industrial Buildings Allowances, Enterprise Zone Allowances and Agricultural Building Allowances – draft legislation

Capital Allowances: Plant and Machinery Allowances: Integral Features and Thermal Insulation

Further to the announcement in Budget 2007, legislation will be introduced in Finance Bill 2008 to provide a new class of "integral features" of a building, expenditure on which will attract writing down allowances ("WDAs") at a new 10% rate.

Thermal insulation on all buildings used for qualifying business purposes (other than residential property businesses) will be included within this class (currently, thermal insulation attracts 25% WDAs, but only if it is in an industrial building).

Draft legislation, published in a technical note in December 2007, defines "integral features" by listing out the relevant assets (they are also set out in the Budget Note). The legislation will also seek to ensure that replacement, as well as initial, expenditure on integral features will qualify for WDAs and not for revenue deductions.

These changes will have effect in respect of expenditure incurred on or after 1 April 2008 for corporation tax payers and 6 April 2008 for income tax payers.

Capital Allowances: Plant and Machinery Allowances: Integral Features and Thermal Insulation – budget notice
Capital Allowances: Plant and Machinery Allowances: Integral Features and Thermal Insulation - draft legislation

Capital Allowances: Plant and Machinery: Rate Changes & New Special Pool

Further to the announcement in Budget 2007, legislation will be introduced in Finance Bill 2008 to reduce the main rate of writing down allowances ("WDAs") for expenditure on general plant and machinery from 25% to 20%. The legislation will also increase the rate of WDAs on long-life assets from 6% to 10%.

New expenditure on long-life assets will immediately be allocated to, and historic expenditure in the long-life asset pool will be subsumed into, a new "special rate" pool (which will also include expenditure on "integral features" and thermal insulation - see BN07).

Where a taxpayer's chargeable period spans the operative date for the rate changes, historic expenditure in each pool will attract WDAs at a "hybrid" rate for that period (reflecting the application of the relevant old and new rates for different parts of that period).

Draft legislation was published in a technical note in December 2007.

These changes will have effect for the calculation of WDAs for chargeable periods ending on or after 1 April 2008 for corporation tax payers and 6 April 2008 for income tax payers.

Capital Allowances: Plant and Machinery: Rate Changes & New Special Pool – budget notice
Capital Allowances: Plant and Machinery: Rate Changes & New Special Pool - draft legislation

Capital Allowances: Plant and Machinery: Annual Investment Allowance

As announced in Budget 2007, legislation will be included in Finance Bill 2008 to introduce a new annual investment allowance ("AIA") for the first £50,000 of a business's expenditure on most plant and machinery (including long-life assets and integral features – see BN07 – but excluding cars) each year. Draft legislation was published in a technical note in December 2007.

An AIA will be available to each qualifying business: it may be claimed by any individual carrying on a qualifying activity, any partnership consisting only of individuals and any corporate group (but not by each company: the reasoning is that companies within a group are legally and economically inter-dependent and should therefore only receive a single allowance). Detailed rules are proposed to prevent "related" companies and businesses from enjoying multiple AIAs.

The 50%/40% first-year allowances available to small and medium-sized enterprises until the end of the tax year 2007/08 will cease to be available following the introduction of the new AIA. However, other enhanced first-year allowances currently available, like allowances for other forms of qualifying expenditure (for example on research and development or business premises renovation), will remain available.

This change will have effect for expenditure incurred on or after 1 April 2008 for corporation tax payers and 6 April 2008 for income tax payers, but only a proportion of the full AIA will be available for expenditure incurred in a chargeable period that spans the relevant effective date.

Capital Allowances: Plant and Machinery: Annual Investment Allowance – budget notice
Capital Allowances: Plant and Machinery: Annual Investment Allowance - draft legislation

Capital Allowances: Introduction of First-Year Tax Credits

As announced in Budget 2007, legislation will be introduced in Finance Bill 2008 to enable companies that invest in designated energy-saving or environmentally-beneficial plant and machinery to obtain a tax credit from the Government where an enhanced 100% first year allowance ("FYA") results in a loss. Draft legislation was published in a technical note in December 2007.

This measure effectively extends the benefit of 100% FYAs to companies investing in "green" plant and machinery to companies that are loss-making in the period in which the expenditure is incurred. Where a company surrenders a loss attributable to such FYAs to the Government, it will receive a tax credit of 19% of the loss surrendered but not exceeding the greater of £250,000 and the total of the company's PAYE and national insurance contributions liabilities for the period for which the loss is surrendered. The loss must be one that can neither be set against the company's profits in that period nor surrendered by way of group relief.

The tax credit may be clawed back if the relevant plant and machinery is sold within four years of the end of the period for which the tax credit was paid.

This change will have effect for qualifying expenditure incurred by companies on or after 1 April 2008.

Capital Allowances: Introduction of First-Year Tax Credits – budget notice
Capital Allowances: Introduction of First-Year Tax Credits - draft legislation

Capital Allowances: Small Plant and Machinery Pools

In response to comments received in response to last year's consultation on the annual investment allowance ("AIA") (see BN12), Finance Bill 2008 will make provision to allow businesses with unrelieved qualifying expenditure of £1,000 or less in either the main (20%) pool or the new special (10%) rate pool (see BN08) to claim a plant and machinery writing-down allowance ("WDA") of up to that amount. This mechanism will not be available for expenditure in "single asset" pools.

This measure aims to remove the administrative burden for small and micro businesses of calculating WDAs on a very small pool of qualifying expenditure, particularly in circumstances where future expenditure is likely to be fully relieved by the AIA.

This change will have effect for chargeable periods beginning on or after 1 April 2008 for corporation tax payers and 6 April 2008 for income tax payers.

Capital Allowances: Small Plant and Machinery Pools – budget notice

Property authorised investment funds

Regulations will create a new elective "Property AIF" tax regime with effect on and after 6 April 2008. The effect will be to move the point of tax from the fund to investors. Only "Property AIFs" will be eligible to elect for such treatment and the draft regulations lay down the qualifying conditions.

Property authorised investment funds – budget notice
Property authorised investment funds - draft legislation

Stamp Duty Land Tax: Relief for New Zero-Carbon Flats

Following the underwhelming industry response to the introduction of the 'zero-carbon home' SDLT relief introduced in last year's Budget, there has been an extension in the types of property that qualify for the relief. With retrospective effect from 1 October 2007, the relief will be available for the first acquisition of zero-carbon flats. The relief will run until 30 September 2012.

As before, the relief wholly or partially reduces SDLT (depending upon purchase price) on the first acquisition of residential properties with no net annual carbon emissions levels from energy use.

Stamp Duty Land Tax: Relief for New Zero-Carbon Flats – budget notice

Stamp Duty Land Tax: Notification thresholds for Land Transactions and Rate Thresholds for Leasehold Property

HMRC announced last year that it was looking into the deregulation of SDLT compliance.

In an attempt to reduce the SDLT compliance burden on lower-value land transactions, and to simplify the SDLT compliance regime generally, HMRC have announced three key changes as part of the deregulatory process.

Until today, for all land transactions, either a full 'SDLT1' return needed completing and filing with HMRC within 30 days, or, less frequently, a shorter 'SDLT60' certificate could be completed.

From today (12 March 2008): fewer transactions will require notification to HMRC under a full 'SDLT1' return.

The purchase of a freehold will only need to be returned using an SDLT1 where the purchase price is £40,000 or more.
The assignment or surrender of a lease with an initial term exceeding seven years will only need to be returned using an SDLT1 where the consideration is £40,000 or more, or the passing rent is £1,000 or more.
The grant of a lease for a term exceeding seven years will only need to be returned where the premium (cash or otherwise) is £40,000 or more, or the annual rent is £1,000 or more.
Other transactions will typically only require an SDLT1 where SDLT is payable (ignoring any relief).

For those transactions which do not require an SDLT1, HMRC will require purchasers to maintain records demonstrating why no SDLT1 was required. The Land Registry is yet to clarify its requirements where a purchaser wishes to register a transaction for which no SDLT1 is required, and we will continue to seek clarification on this point.

Stamp Duty Land Tax: Notification thresholds for Land Transactions and Rate Thresholds for Leasehold Property – budget notice

Stamp Duty Land Tax: Anti-Avoidance Legislation Affecting Partnerships

Having introduced swingeing anti-avoidance provisions in last year's budget, HMRC is attempting to counter some of the unanticipated side-effects of its initial approach.

With retrospective effect from 19 July 2007, transfers of interests in land within a property investment partnership (a partnership whose sole or main activity is investing or dealing in interests in land) will not be charged to SDLT.

Stamp Duty Land Tax: Anti-Avoidance Legislation Affecting Partnerships – budget notice

Stamp Duty Land Tax: Anti-Avoidance – Group relief

Another year, another set of modifications to SDLT group relief.

SDLT group relief allows companies within the same 'group' to transfer assets between them, provided that certain conditions are met. Significant planning using the group relief provisions has resulted in an increasingly brittle relief which is difficult to obtain and to hold onto even in legitimate circumstances, as a consequence of HMRC attempting to plug various avoidance loopholes.

Where a property is acquired by one group company from another, and that purchaser company is then sold on to a third party, HMRC should be able to 'claw back' any group relief claimed on the acquisition (the trigger being the purchaser company ceasing to be in the same group as the vendor company).

HMRC has come across a new variety of SDLT planning scheme whereby the vendor leaves the SDLT group before the purchaser leaves the SDLT group, bypassing the current clawback provisions.

From tomorrow (13 March 2008): where an agreement to acquire an interest in land completes or is substantially performed (that is to say, 90% or more of the non-rent consideration due under the agreement is paid, a single payment of rent is made, possession of more than 50% of the property is taken, or the purchaser becomes entitled to receive rent in respect of the property), the new anti-avoidance rule will apply. Under this rule, where a vendor company leaves a group, and then the purchaser leaves the group within three years of the property interest having been transferred to it, any SDLT relieved under the group relief provisions will be clawed back by HMRC.

Stamp Duty Land Tax: Anti-Avoidance – Group relief – budget notice

Stamp Duty Land Tax (SDLT): Alternative Finance: Anti-Avoidance

The Government has closed down a loophole that allowed SDLT on ordinary commercial sales or sale/lease and leaseback transactions to be avoided by exploiting a relief intended to benefit alternative financing arrangements.

Section 71A Finance Act 2003 and certain related provisions seek to ensure that arrangements which are commercially equivalent to a secured lending but which (with a view to avoiding the charging or payment of any interest) involve land transactions such as a sale or lease and leaseback, do not give rise to SDLT (any more than a secured lending would).

The scope of those provisions was not limited to financing arrangements, however, and it is understood that ordinary commercial sale/lease and leaseback transactions, or ordinary commercial sales, could be so structured as to avoid SDLT by virtue of this relief. In such cases, it was generally necessary for a "financial institution" (typically the wholly owned subsidiary of a bank) to purchase the land, and for that "financial institution" then to be acquired by the commercial purchaser of the land.

The new rule will deny relief under these provisions if arrangements are involved for a person to acquire control of the "financial institution".

This change has effect for any transaction with an effective date on or after 12 March 2008.

Stamp Duty Land Tax (SDLT): Alternative Finance: Anti-Avoidance – budget notice
Stamp Duty Land Tax (SDLT): Alternative Finance: Anti-Avoidance – draft legislation

VAT: Option to Tax Land & Buildings

The Government has been consulting since 2004 on changes to the rules (contained in Schedule 10 Value Added Tax Act 1994) relating to the option to tax land and buildings for VAT. One of the drivers behind that process is the fact that 1 August 2009 will be the 20th anniversary of the introduction of the option to tax, so the oldest options will become revocable on that date (an option can only be revoked conditionally within the first three months after it is made, or after 20 years).

The Government wishes to regulate how and when revocations after 20 years may be made, and is also taking this opportunity to "simplify" legislation that is, in places, extremely complex.

This Budget Note announces the Government's intention to use the enabling power contained in section 17 Finance Act 2006 to lay a Treasury Order inserting a revised Schedule 10 into the Value Added Tax Act 1994 (and to make certain consequential changes elsewhere in the VAT legislation). A draft Treasury Order was given limited circulation for informal consultation in August 2007.

The rewritten legislation is to have effect on and after 1 June 2008.

VAT: Option to Tax Land & Buildings – budget notice

Landfill Communities Fund

The maximum credit against annual landfill tax liability that can be claimed by businesses registered for landfill tax for contributions to environmental bodies enrolled under the Landfill Communities Fund ("LCF") is to be amended from 6.6% to 6%. Certain other generally administrative changes to the regime applicable to LCF enrolled environmental bodies will also be made.

The changes will be made by statutory instrument (to be laid on 19 March, according to the Budget Note) and by legislation to be included in Finance Bill 2008.

The changes will have effect on and after 1 April 2008.

Landfill Communities Fund – budget notice

Landfill Tax

While the property industry waits for land remediation relief to take wing, the exemptions for landfill tax continue to be dismantled.

Waste from cleaning up contaminated land disposed of by landfill is currently exempt from landfill tax, provided the disposer holds a relief certificate.

From 1 December 2008 applications for relief certificates will not be accepted by HMRC. Those holding a certificate will have until 31 March 2012 to dispose of their waste with the benefit of the exemption. Thereafter, landfill tax will be chargeable at the appropriate rate.

Landfill Tax – budget notice