The Chancellor’s Budget speech included a number of announcements to be welcomed by the social housing sector, including over £5.4 billion of financial support to the housing market and to those who want to get on or move up the housing ladder.
Included in his financial package is a new Help to Buy housing scheme which seeks to build on the success of the existing First Buy scheme. Help to Buy will have two key elements; an “equity loan” worth up to 20 per cent of the value of a new build home, repayable once the home is sold, and a “mortgage guarantee” to incentivise lenders who offer mortgages to people with small deposits. The maximum home value will be £600,000 and there will be no income cap constraint. This scheme is expected to run for three years.
The Government is also looking to invest in new affordable homes by doubling the existing affordable homes guarantee programme, providing up to an additional £225 million to support a further 15,000 affordable homes in England by 2015, and increasing the Build to Rent fund announced in the Autumn Statement from £200 million to £1 billion. Other announcements include a reduction in the qualifying period for Right to Buy from five years to three years, and an increase in the maximum Right to Buy discount cash cap in London to £100,000.
Alongside the above measures, the Government will continue with the reform of the planning system to ensure the regime is simple to access, supports growth and is responsive to housing need.
We have summarised below key tax proposals from the Budget Report delivered on 20 March 2013 which could affect social housing providers.
The following announcements made in the Budget will be applicable to non-charitable Registered Providers, as well as the non-charitable subsidiary companies of charitable Registered Providers.
The current rate of corporation tax is 24 per cent, falling to 23 per cent on 1 April 2013. From 1 April 2014 the main rate of corporation tax in the UK will be reduced to 21 per cent, and it was announced that from 1 April 2015 this will now fall to 20 per cent.
The 100 per cent first year allowance available for expenditure on cars with low carbon dioxide emissions and electrically propelled cars will be extended until 31 March 2018. In addition it was announced that the list of designated energy-saving and water-efficient technologies qualifying for enhanced capital allowances will be updated during summer 2013, subject to state aids approval.
There will be an increase in the Annual Investment Allowance limit from £25,000 to £250,000 for two years for all qualifying investments in plant and machinery made on or after 1 January 2013.
The new higher-rate SDLT charge for purchases of dwellings with a value in excess of £2 million was introduced from 21 March 2012. Where residential property over £2 million is acquired by individuals the charge is 7 per cent, whereas purchases of £2 million plus properties by companies are subject to a 15 per cent charge. Following a number of representations made by the property sector, the Government has introduced a number of reliefs from the 15 per cent charge.
The reliefs will cover:
- property development, investment rental and trading businesses;
- residential properties open to the public for at least 28 days a year on a commercial basis;
- residential properties held for employee accommodation;
- residential properties owned by a charity and held for charitable purposes;
- working farmhouses;
- diplomatic properties; and,
- some other publicly-owned residential properties.
These reliefs will be introduced from Royal Assent to Finance Bill 2013. Until that date the higher rate of SDLT will still apply to transactions which fall within one of the above reliefs.
Social housing providers often purchase large numbers of residential properties, e.g. stock transfers, however where 6 or more residential properties (dwellings) are purchased together this will still be treated as “non-residential” property for the purposes of the legislation, even if the total value of these properties is over £2 million the SDLT rate of 4 per cent would apply on these purchases.
In addition, the relief available on the purchase of multiple dwellings is still available if there is the purchase of more than one dwelling, this results in SDLT being charged at the rate applicable to the average value of all of the properties transferring which in many cases will mean that the 1 per cent should apply.
As a result, the 15 per cent rate of SDLT should not impact significantly on property developers or social housing providers buying multiple properties. Even in the rare cases where a single large property is being purchased, for instance, for redevelopment or conversion, then one of the above reliefs should apply, and therefore it would be highly unusual for land purchased for a genuine development project to be caught by these new rules. It should however be noted that the reliefs from the 15 per cent charge will not be introduced at the same time as the reliefs from the Annual Tax on Enveloped Dwellings (see below).
A new annual charge has been introduced which is payable where residential property worth over £2 million is held by a corporate vehicle such as a company, a unit trust or a partnership with at least one corporate partner. The rate starts at £15,000 per annum for residential properties between £2 million and £5 million rising to a top rate of £140,000 per annum for each property with a value over £20 million. The aim is to discourage people from owning high value residential property within the UK in a corporate vehicle.
The above reliefs will also apply to the Annual Tax on Enveloped Dwellings, and will have immediate effect from 1 April 2013 when the charge is introduced.
This annual charge should not apply to the holding of housing stock or significant property estates where the aggregate value is over £2 million. It is intended only to apply where very high value residences are held through companies.
It was confirmed in the Budget that the withdrawal of the reduced rate (currently 5 per cent) for the installation of energy saving materials in a building intended to be used solely for a relevant charitable purpose will have effect from 1 August 2013, as had previously been announced.
The reduced rate will still apply to the installation of energy saving materials in residential accommodation.
The European Commission have challenged this application of the reduced rate and HMRC have stood firm that it should continue to apply to residential accommodation. The matter has been referred to the European Court of Justice, although a decision is not expected for several years.
Although it was not addressed in the Budget, over recent years, energy companies have had and continue to have obligations to improve the energy efficiency of houses.
This has triggered a significant volume of works to Housing Association stock either as a result of discounts to charges for works that reduce energy consumption or payments from energy companies for the “credit” for works that reduce energy consumption.
Housing Associations should ensure that these arrangements are treated correctly from a VAT perspective, including recovering the correct amount of VAT on the cost of associated works.
Again, although not addressed in the budget, the Cost Sharing Exemption is now very much up and running. Click here for KPMG’s Social Housing Newsletter which provides the latest update.
Following recent discussions between HMRC, the National Housing Federation (“NHF”) and KPMG (as the NHF’s tax advisers), we are pleased to announce that an updated version of the Framework is due to be published in the summer of 2013.
A single-tier state pension is to be introduced – the date when this will be introduced has been brought forward by a year to April 2016.
From that point, employees and employers currently paying contracted-out rates of NIC will see their NIC costs increase because they will no longer pay contracted-out rates of NIC. The current rates of 10.6 per cent and 10.4 per cent for employees and employers will increase to 12 per cent (for earnings below £40,040) and 13.8 per cent respectively.
The personal tax free allowance is to increase by £560 to £10,000 from 6 April 2014 – one year earlier than expected.
A new Scheme will be introduced in autumn 2015 giving working parents tax relief of up £1,200 per annum on their childcare costs.
The current Employer Supported Childcare arrangements will be phased out in time and further consultation on the details of the scheme will follow in the spring.
It is proposed that, from 2014/15, employers will be able to offer interest free loans of up to £10,000 to staff without giving rise to a benefit in kind. This measure doubles the current beneficial loan limit of £5,000.
From April 2015, two new Company Car Tax bands will be introduced for Ultra Low Emission Vehicles (“ULEV”) at 0-50g/km and 51-75g/km of CO2.
The appropriate percentage of the list price subject to tax for 0-50g/km vehicles will be 5 per cent in 2015/16 and 7 per cent in 2016/17. For vehicles in the 51-75g/km category the appropriate percentages will be 9 per cent in 2015/16 and 11 per cent in 2016/17.
From 6 April 2014 the fuel benefit charge multiplier will increase by reference to the Retail Prices Index (“RPI”) for both company cars and vans. The multiplier from 6 April 2013 will be £21,100.
The Government intends to create the health and work assessment and advisory service for those in danger of long-term sickness absence. It will also introduce tax relief provisions so that amounts up to a cap of £500 paid by employers on health-related interventions recommended by the service are not treated as a taxable benefit in kind. The Government will consult on implementation later in 2013.
From April 2014 all UK employers (businesses and charities) will be eligible for a new £2,000 Employment Allowance. The effect of this allowance is that it will reduce the overall amount of Employer’s NIC payable to HMRC each year.
The scheme will be administered through payroll reporting and Real Time Information and employers will be required to opt in to confirm eligibility for the allowance. Further detail is expected in relation to how the new Employment Allowance will operate in relation to organisations with multiple PAYE schemes.
As announced in the Autumn Statement 2012 the Government have confirmed that the IR35 legislation also covers office holders. This will impact on office holders paid via intermediaries (e.g. personal service companies).
Following the publication of the “Tax and Procurement” consultation document on 14 February 2013, HMRC has now confirmed that the new rules will come into effect from 1 April 2013.
Under these new rules, tenders for contracts issued by Central Government and Non-Departmental Public Bodies would need to include a requirement for “occasions of non-compliance” to be disclosed as part of any tender submission. The purpose of this requirement is to enable Government to consider the tax compliance profile of potential suppliers as part of its procurement process. However, following the consultation, the proposed rules have been changed in a number of ways, in particular:
- A new de-minimis limit, so that only contracts over £5 million are included;
- The definition of occasions of non-compliance has been clarified, with the reference to “targeted anti-avoidance”, which was not defined, being removed;
- Only occasions of non-compliance occurring from 1 April 2013 will be considered, and is in respect of a tax return submitted after 1 October 2012, so past activities are not included.
The implications for the social housing sector of these new rules are still not clear, and we will be further considering the potential impact for Registered Providers. We will be in touch with you again soon to follow up.