Property Taxation in Pre Budget Report 2007

The Chancellor's first Pre Budget Report was rushed forward to October; raising a few eyebrows. Here we cover the issues relating to property taxation

Darling

CAPITAL ALLOWANCES 

Expenditure on building alterations made in response to a notice from a Fire Authority will no longer attract capital allowances relief from April 2008.  The Finance Bill 2008 will repeal Section 29 of Capital Allowances Act 2001 so as to ensure tax-payers are not delaying vital fire safety improvements in pursuit of tax savings.

This deals with an anachronistic area of capital allowances that has long since been superseded by Building Regulations and fire safety legislation that operates on a self –assessment basis.  Expenditure on fire safety equipment, such as alarms and sprinkler systems will continue to qualify for plant & machinery allowances to all businesses.

Additionally the Government will no longer pursue the state aid clearance for 100% enhanced capital allowance (ECA) to incentivise development of the cleanest biofuel plant.  The Chancellor, Alistair Darling admitted defeat against EU bureaucracy, indicating that it had become clear that in order to make the tax relief compliant it would offer little value to the limited number of businesses who would be eligible whilst introducing considerable administrative complexity and uncertainty.  As such the Government has decided instead to focus on ensuring that the Renewable Transport Fuels Obligation (RTFO) that encourages the production of the cleanest and most sustainable biofuels.

“It’s disappointing to see the proposed 100% enhanced capital allowance ditched, but we hope that the RTFO matches the value to genuinely encourage investment and innovation!”

“Sadly the Chancellor missed the opportunity to ease the pain following the shock Budget announcement withdrawing industrial building allowances.  These measures are conservatively estimated to cost industry over £10bn over the next 25 years and they particularly hit the hotel sector hard - at a time when investment is greatly required in the run up to the 2012 Olympic Games.” stated E3 Consulting’s Managing Director, Alun Oliver MBA MCIM FRICS.

PLANNING GAIN SUPPLEMENT 

The Chancellor also said that the Government will not be introducing a Planning Gain Supplement Bill in the next Parliamentary Session.  Instead they intend to legislate in the forthcoming Planning Reform Bill for a new statutory planning charge to enable councils to capture greater levels of planning gain to support new infrastructure and housing.  This investment will be in addition to Section 106 agreements.  The Government's approach builds on the strengths of the current system and experience from areas where a form of charging is already being applied.  Whilst off the agenda for sometime, it has not disappeared as Yvette Cooper states that “We will keep under close review the development and operation of statutory planning charges to make sure that they achieve our aims of increasing investment in infrastructure” leaving the door open in future for PGS.

The new proposals will empower local authorities to apply standard planning charges for all new development in their areas to support infrastructure delivery. The main features of the planning charge will be as follows: 

  • Subject to low de minimis thresholds, residential and commercial development will be liable to pay the planning charge.
  • Where appropriate Local Authorities will be able to use planning charges to supplement a negotiated agreement. Negotiated agreements will still be necessary to secure affordable housing and to address costs related to the specific development site.
  • Planning charges should be based on a costed assessment of the infrastructure requirements arising specifically out of the development contemplated by the development plan for the area (which comprises the regional spatial strategy and the local development framework), taking account of land values.
  • Planning charges should include contributions towards the costs of infrastructure of sub-regional and regional importance identified in development plans.
  • Planning charge policies in development plans will be tested through the development plan process, in consultation with developers, stakeholders and the community to ensure they support the viability of new development and levels of new housing required.

Clearly there is much to clarify as the Government brings forward the planning legislation, not least the basis for ‘standard charges’ and the relationship between land values and infrastructure costs. 

CAPITAL GAINS TAX

The flat rate of 18% CGT, will hit entrepreneurial businesses through the loss of business asset taper relief, effectively increasing their tax liability by 8%.  This change will, however benefit those in the property sector, such as buy to let landlords.  After 6 April 2008, tax payers will save at least 6% on their CGT against any capital gains arising from disposal of non-business assets.

VAT

The Pre-Budget Report had relatively little to say on VAT but did indicate that the reduced rate of 5% VAT on renovation or alteration of empty dwellings will be expanded to apply to homes that have been empty for two years (rather than the three at present) from 1 January 2008.

The Government is also to consult with industry this autumn on the simplification of VAT rules and administration in the UK.  In particular:

  • The option to tax on commercial properties 
  • Frequency of VAT returns;
  • Capital goods scheme for businesses with partial exemption; and 
  • VAT retail schemes.

To discuss these aspects or for more information please contact us.

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