Gavin Birchall, Tax Partner and property tax specialist at Scrutton Bland reviews the Chancellor’s budget
The good news for developers is that Entrepreneurs Relief (“ER”) has been retained so that many developers can still benefit from a 10% capital gains tax rate on the sale or liquidation of a property development company. However, the ER rules have been altered so that shares in property development companies will now need to be owned for at least 2 years (or the company has traded for at least 2 years) in order for an individual shareholder to benefit from ER. The current period is 1 year. This new rule will apply to company sales or liquidations on or after 6 April 2019.
A further change was announced which will require a shareholder to be entitled to 5% of the distributable profits and net assets of the company as well as requiring a shareholder to hold at least 5% of the voting rights and issued share capital. This change takes effect for disposals after 29 October 2018.
VAT Reverse Charge:
The Government has confirmed that it is going ahead with its proposals to introduce a VAT reverse charge procedure to invoicing within the construction industry. These changes will take effect from the 1 October 2019 and will shift the responsibility for accounting for VAT from the sub-contractor to the contractor in cases of supplies made by sub-contractors to contractors. In other words, the contractor will pay over the VAT to HMRC on the invoice which they receive rather than the supplier collecting the VAT from the contractor. There is currently a degree of uncertainty as to whether this change will directly impact property developers.
Stamp Duty Land Tax (SDLT):
The time window for filing an SDLT return and paying SDLT following a property transaction will be reduced from 30 days to 14 days with effect from the 1 March 2019.
The Government also announced an extension to first time buyer’s relief on purchases of shared ownership properties. The current rules restrict the use of this relief to cases where the first-time buyer elects to pay SDLT on the full market value of the property. The new rules will allow first time buyers to benefit from the relief on the initial purchase of a property share (subject to a maximum property value of £500,000). These rules are backdated to apply to purchases from 22nd November 2017.
Reforming Community Infrastructure Levy:
The Government have published a consultation on reforming the Community Infrastructure levy and the rules relating to s.106 obligations. You can view further information on this by clicking on the links below:
If you missed our Budget Breakfast event, you can catch up on what our speakers had to say by viewing our Presentation Playback here.