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This article was first published on LexisPSL Property on 19 March 2014. Click here for a free 24h trial of LexisPSL.

The Budget 2014 for property lawyers

19/03/2014 Property analysis: With the Chancellor's speech still ringing in our ears, we bring together the most important features of the Budget 2014 for property lawyers alongside expert analysis and industry comment.

What was relevant in the Budget for property lawyers?

Property taxes Enveloping: Budget 2014--TIIN: Changes to the taxation of high value UK residential property held by certain non-natural persons, LNB News 19/03/2014 155 At Budget 2012, the government introduced a number of new measures to discourage placing property in corporate envelopes to avoid stamp duty land tax (SDLT)--otherwise known as 'enveloping'. These apply to residential properties valued over 2m and include: o o o a higher rate of Stamp Duty Land Tax (SDLT) (15%) when the property is first enveloped an Annual Tax on Enveloped Dwellings (ATED) a related capital gains tax (CGT) charge on any gains on disposal of enveloped properties

The government believes that as well as discouraging SDLT avoidance, ATED incentivises commercial activities by providing relief where, for example, a property is rented out. Therefore, it is expanding the measures: o o the 15% SDLT rate will be extended to apply to residential properties purchased by certain non-natural persons to properties purchased for over 500,000 with effect from 20 March 2014 two new bands for ATED will be introduced. Residential properties worth over 1m and up to 2m will be brought into the charge with effect from 1 April 2015. The charge for these properties in 2015/16 will be 7,000. Properties worth over 500,000 and up to 1m will be brought into the charge with effect from 1 April 2016. The charge for these properties in 2016/17 will be 3,500. These charges will be increased by CPI each year the related CGT charge on disposals of properties liable to ATED will be extended to residential properties worth over 1m and up to 2m with effect from 6 April 2015 and for residential properties worth over 500,000 and up to 1m with effect from 6 April 2016

The government 'recognises that the structure of ATED can create some administrative burdens for genuine property rental, trading and development companies'--which is why it is staggering the introduction of the new bands. It will also consult over summer 2014 on possible options to simplify the administration of ATED to 'reduce compliance burdens for genuine businesses'. SDLT: Budget 2014--TIIN: Changes to the taxation of high value UK residential property held by certain non-natural persons, LNB News 19/03/2014 155

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As part of its Investment Management Strategy, the government will consult on the SDLT treatment of the seeding of property authorised investment funds and the wider SDLT treatment of co-ownership authorised contractual schemes. As announced at Autumn Statement 2013, the government will legislate to make it clear that partial relief from SDLT is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it. The changes will take effect from the date on which Finance Bill 2014 receives Royal Assent. CGT: Budget 2014--TIIN: Changes to the taxation of high value UK residential property held by certain non-natural persons, LNB News 19/03/2014 155 As announced at Autumn Statement 2013: o CGT is to be introduced on future gains made by non-residents disposing of UK residential property from April 2015--a consultation on how best to introduce the charge will be published shortly the government will legislate to reduce the final period exemption to CGT private residence relief from 36 months to 18 months in most cases from 6 April 2014

The government will also legislate to include payment entitlements under the new agricultural subsidy Basic Payment Scheme within the business asset roll-over relief classes of qualifying assets. General tax avoidance: Budget 2014--TIIN: Accelerated payments of tax for avoidance schemes, LNB News 19/03/2014 222 The Chancellor confirms the government will tackle tax avoidance by requiring users of schemes falling within the Disclosure of Tax Avoidance Schemes rules (DOTAS) and schemes covered by the General Anti-Abuse Rule (GAAR) to pay the tax in dispute upfront. This will apply where the avoidance scheme being used has been defeated in another party's litigation through the courts. The government is also to consult on improving the current DOTAS regime, including through refining the existing avoidance scheme hallmarks, introducing new hallmarks, and strengthening the penalties for non-disclosure. Enterprise zones Budget 2014--TIIN: Enterprise Zones--enhanced capital allowances, LNB News 19/03/2014 234 Under the banner of local growth, the Chancellor confirms the availability of business rate discounts and enhanced capital allowances will each be extended by three years (until 31 March 2018 for business rates and 31 March 2020 for enhanced capital allowances). High street stores will get 1,000 off their rates. Business premises renovation allowance Budget 2014--TIIN: Business Premises Renovation Allowance, LNB News 19/03/2014 219 Following a review of the Business Premises Renovation Allowance (BPRA), the government will simplify the scheme (with effect from April 2014), to make it more certain in its application and to reduce the risk of exploitation, with effect from April 2014. Housing Press Release: Chancellor announces major boost to housebuilding, LNB News 17/03/2014 133 The Chancellor confirms the government is to take further action to boost housing supply (claiming the combined measures will mean 200,000 new homes) by:

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o o o In addition: o

extending the Help to Buy equity loan scheme to March 2020 (the Help to Buy mortgage guarantee scheme will continue to support access to high loan to value mortgages until it ends on 31 December 2016) consulting on creating a new 'Right to Build', giving custom builders a right to a plot from councils and a 150m repayable fund to help provide up to 10,000 serviced plots for custom build--the government will also look to make the Help to Buy equity loan scheme available for custom build creating a 500m Builders Finance Fund to provide loans to SME housing developers to 'unlock 15,000 housing units stalled due to difficulty in accessing finance' creating an Urban Development Corporation for a new garden city in Ebbsfleet, building new homes in Barking Riverside and regenerating Brent Cross extending the current Support for Mortgage Interest Scheme (providing support for homeowners receiving certain income-related benefits) to 31 March 2016

o o

the Government Property Unit has recently concluded its Strategic Land and Property Review which has identified scope to release 5bn from government land and property, creating opportunities for housing and economic development. A significant amount of this will be brownfield land. The government confirms departments have already committed to reforms which will release 3.5bn of land and property and that a further 1.5bn will be identified through ongoing operational reviews. By Autumn Statement 2014 the government will look to quantify its housing and growth ambitions for this new surplus land programme the government will shortly publish its response to last year's consultation on implementing zero carbon homes from 2016 the government will launch a government-funded staged pilot for passing a share of the benefits of development directly to individual households, including further research and evaluation of the approach the government will shortly consult on the design of a priority 'Right to Move' for social tenants to increase their mobility for work-related reasons. Options will include giving such tenants priority when a new social home becomes available, and setting aside a pool of vacant lets to enable them to move across local authority boundaries

Flood defences The Chancellor confirmed the government will increase funding by 140m over 2014/15 and 2015/16 to repair and maintain flood defences. The government is developing a long-term plan that will direct all of its investment in this area which it will publish in the autumn. Construction Industry Scheme The government will consult in summer 2014 on options to improve the operation of the Construction Industry Scheme (CIS) for smaller businesses and to introduce mandatory on-line filing for contractors. The government will also hold discussions with industry on revisions to reporting obligations and improvements in registration for joint ventures.

What does this mean for property lawyers?

What are the headlines for this year's Budget for property lawyers and why? Lee Nuttall, head of tax at Wragge & Co: We are struggling to come up with a list of headlines that might be of interest even to tax lawyers. What took off most on the Twittersphere was a complete misunderstanding of the announcement on the 15% rate of SDLT. A 15% rate is already in place for acquisitions of residential property for more than 2m by 'non-natural persons' (say, a company based in a tax haven owned by a wealthy non-UK resident individual). The threshold for the 15% rate is currently 2m, but is to be reduced to 500,000 from tomorrow. So your

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oligarch--or very small oligarch--buying a property for between 500,000 and 2m through a company will now be subject to SDLT at 15% rather than the normal rates of SDLT (the top rate for which is 7%). Individuals buying property direct are subject to the normal rates. The new threshold also applies to the ATED, resulting in two new bands: o o 3,500, for residential property values between 500k and 1m, and 7,000 for properties valued between 1m and 2m

There was a hope of a structural reform to SDLT (particularly around the thresholds) that has gone unfulfilled. We have lobbied for a targeted seeding relief for property authorised investment funds (PAIFs) to encourage institutional investment in new UK-based investments funds without triggering additional SDLT charges on set-up. The good news is that there is a promise of seeded relief on the transfer of properties into the PAIF. They are tightening up on the rules on BPRA. These were brought in to encourage investment in disadvantaged areas. They have been fairly roundly abused, and reform is not before time. BPRA is a good thing, and I am pleased to see its reform rather than its abolition. Were there any surprises? The surprise was the doubling of the amount of the annual investment allowance for capital expenditure on qualifying plant and machinery to 500,000--but only for 2014/15. For businesses generally, that is very useful. It means immediate 100% tax relief for that expense. What actions should property lawyers be taking as the dust settles? It's a rather dull Budget. I'm not sure that there is a great deal for property lawyers to do as a direct result. They should always be talking to their tax colleagues, of course. There is the prospect of more form-filling on ATED and SDLT for wealthy clients who continue to buy and hold residential properties through companies.

What are the initial thoughts from LexisPSL?

Jo Bhatia, solicitor in the LexisPSL Property team: The Chancellor's central messages were 'growth' and 'fairness', which for the property industry essentially means residential development/housing and property taxes. One of the most significant measures is the extension of the tax measures to discourage 'enveloping' properties. Whether this will actually discourage enveloping or simply raise more revenue for the government will be interesting to see as the government confirms that ATED has raised five times the amount forecast for 2013/14, with significantly more properties above 2m in envelopes than expected.

What has been the reaction from the property industry?

SDLT Simon Rubinsohn, chief economist, RICS: 'Yet again, the Chancellor has failed to overhaul the stamp duty system, with wages well below inflation and rents rising rapidly for years, many have been struggling to save for a deposit, let alone meet a huge tax bill. Helping more buyers to enter at the lower end of the market would have resulted in more movement and transactions, freeing up stagnant property chains and bringing badly-needed housing onto the market.' Rosalind Rowe, real estate tax partner, PwC: 'The Chancellor is now using last year's punitive stamp tax on homes bought in 'wrappers' to deter overseas investors who "buy to leave" and are not investing. This creates an onerous burden and could have unintended consequences, for example buy to let landlords, funds and housing associations will be exempt from the tax but will still have to complete a tax return, resulting in an extra compliance cost. What's more, because the changes are introduced at different times any owner is going to struggle with getting the tax right.' Mark Harris, chief executive, SPF Private Clients: 'The long overdue wholesale reform of the archaic SDLT system was left alone for another year at least. However, anyone buying a residential property over

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500,000 through a corporate envelope will pay 15% stamp duty unless the property is let from midnight tonight. But as long as the same exclusions apply as before--that property development companies with a track record are excluded--then it is unlikely to create much of an issue. Generally, most wealthy people are now buying in their own names anyway.' Flood defences Jon Williams, partner, PwC: 'The 140m in additional funding for immediate repairs to flood damaged defences is welcome, but does not plug the gap needed to ensure the UK is resilient to flooding in the medium term. Even after the funding, there is an estimated 500m shortfall if we are to maintain flood defences to avoid in future the estimated 1bn of insured losses and further uninsured economic costs incurred as a result of this winter's floods. This also ignores the additional investment that will be needed if we are to adapt to a changing climate. Given the current budgetary constraints, this funding in unlikely to only come from the public purse, and further ways to involve the private sector to build the infrastructure and manage flood risk, such as Flood Re, need to be developed.' 'One issue that the UK will need to resolve is the tension between building houses on flood plains to relieve the housing shortage burden and the propensity of these new properties to be flooded. Currently the only incentive for these new properties to not be built is that they are not currently covered by Flood Re.' Help to Buy Simon Rubinsohn, chief economist, RICS: 'The extension of Help to Buy to 2020 is not a game changer. While it provides certainty and clarity to the market, creating another 120,000 new build properties is still a modest target. We need over 230,000 just to meet current demand. Much more needs to be done.' John Allan, National Chairman, Federation of Small Businesses: 'Extending Help to Buy on new build properties and committing to a new development in Ebbsfleet will maintain increasing confidence in the construction sector, which has risen significantly in the past year. To continue to build on this increasing optimism the government needs to ensure that small firms can access contracts and work. The financial support announced for small house builders will therefore be welcomed.' James Pargeter, head of residential projects, Deloitte Real Estate: 'Private sector house builders and developers are undoubtedly assisted by "Help to Buy", but there was very little today to show any additional support for the affordable housing and private rented sectors which are also essential parts of the housing spectrum.'

Want to know more?

A full overview of the Budget 2014 can be found here. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.