2020 Budget: Real Estate

2020 Budget Real Estate

Stamp Duty Land Tax (SDLT) - Stamp Duty Land Tax 2% Surcharge for Non-UK Resident Purchasers of Residential Property

The Government consulted in 2019 on a proposal to impose a surcharge of 1% for non-residents buying residential property in England and Northern Ireland within the scope of SDLT. Although the Conservative Party manifesto suggested a rate of 3%, the measure to be introduced for purchases completing from 1 April 2021 was today confirmed as a 2% charge over and above the existing SDLT rates. This will increase the maximum rate for SDLT to 17%.

The detailed rules will be consulted on in Summer 2020, and implemented in the 2020-21 Finance Bill. The Budget arithmetic evidently assumes that many transactions will be brought forward to complete before the surcharge will have effect. There will be some transitional rules to apply to transactions where contracts have already been exchanged before today but do not complete before 1 April 2021.

On the basis of the earlier consultation, it is expected that bulk purchases of at least 6 dwellings will continue to be treated as commercial transactions and will not be subject to the 2% charge. For purchases of fewer than 6 dwellings the surcharge is also likely to apply to UK-resident companies which are controlled by 5 or fewer non-resident individuals (under the close company rules), as well as to non-UK companies and non-UK individuals.


The measure is aimed at controlling house price inflation and supporting UK residents to get on to and move up the property ladder. However, this measure will add yet another layer of complexity to the SDLT rules on residential property purchases, which already have a multitude of rates depending on the identity of the buyer, the price paid and whether it is a second home.

Corporation Tax Rate

The Government has announced that it will legislate to retain the current 19% rate from 1 April 2020 as opposed to previous legislation that was passed to reduce the rate to 17%.

Changes to Corporation Tax for non-UK Resident Companies with UK Property Income

As enacted in Finance Act 2019, non-UK resident companies carrying on a UK property business (or have other UK property income) will be bought within the charge to corporation tax, rather than income tax, on their property rental profits from 6 April 2020. The Government will legislate in Finance Bill 2020 to ensure that the Finance Act 2019 rules work as intended. The aim of this is to ensure a smooth transition of the taxation of UK property profits from income tax to corporation tax and continue to deliver more equal tax treatment for UK and non-UK resident companies who are recipients to income of a similar nature.


It is encouraging that the Government has responded to industry feedback and is seeking to ensure the rules work as envisaged.

Hybrid and Other Mismatches

The Government will publish a consultation on the corporation tax rules that apply to hybrid mismatch arrangements. These are arrangements that exploit the differences in tax treatments between the two jurisdictions and the consultation seeks to ensure that the hybrid mismatch rules work proportionately and as intended.


On the basis that there are a number of unintended consequences a consultation review of the application of the hybrid mismatch rules is welcomed.

Corporate Capital Loss Restriction

As previously announced in the 2018 Budget, from 1 April 2020, the use of capital losses carried forward by companies will be restricted to 50% of capital gains in a similar manner to corporate losses. The measure will include an allowance where companies can offset up to £5m capital or income losses per annum prior to any restriction. This measure will not apply to insolvent companies in liquidation who will continue to be able to offset carried forward capital losses without restriction. Additionally, the anti-forestalling provision announced in Budget 2018 has had effect in relation to the offset of capital losses from 29 October 2018.


It remains that the vast majority of companies are unlikely to be affected by this measure, but where applicable it is likely to result in a tax liability arising on gains where this would previously not have been the case. Additionally, the allocation of the £5m per annum group deductions allowance between carried forward income and capital gains will need to be considered annually where relevant.

Consultation on UK Tax Treatment of Funds Sector

The UK Government has launched a consultation on the UK tax treatment of the Funds sector (in particular asset holding companies) with a view to establishing whether changes to the tax treatment of companies used by funds to hold assets could make the UK a more attractive location. The consultation covers a number of issues including:

  • Expanding the Substantial Shareholding Exemption to benefit Real Estate Funds (including broadening the definition of certain qualifying investors)
  • The treatment of returns upon repatriation to investors (i.e., capital or income)
  • The impact of the hybrid mismatch provisions and in particular the treatment of exempt investors and the imposition of obligations that are difficult to meet due to lack of information
  • Whether the UK’s corporate interest withholding regime impacts decision making for Funds


Following recent changes to the Substantial Shareholding Exemption and given the importance of the UK’s Funds sector, the potential for further reform is welcomed. Addressing market barriers could help to further support the recent trend of the Funds sector locating their asset holding companies in the UK, which has historically been a location of key employees.

VAT on Fund Management

The Government has announced that it will be introducing legislation to clarify when the exemption for fund management can apply. This measure will expand where the fund management exemption can apply to the management of investment funds. These measures will provide for the exemption to certain pension funds and closed-ended listed funds.


While the clarification of the exemption is generally welcomed, fund managers will need to consider the new legislation carefully, and determine the impact it may have on their ability to recover VAT.

Structures and Buildings Allowances (SBA)

The rate of annual allowance will be increased to 3% from 2% from 1 April 2020 for corporation tax (and 6 April 2020 for income tax). SBA will be available at the new 3% rate for any non-residential building or structure brought into qualifying use where contracts for construction works were entered into on or after 29 October 2018. The new rate will also be available to businesses that were entitled to SBA on building and structures brought into use between 29 October 2018 and 1 April 2020. Where a chargeable period spans the date of change, SBA may be claimed at the 2% rate per year for days before 1 April and 3% for days thereafter. Some technical amendments are also being made to the legislation. They include changes to prevent double relief where research and development allowances are available and allow claims to SBA on contributions to expenditure incurred by a public body, both of which have effect from 11 March 2020. The remaining minor amendments are deemed always to have effect.


The increase in the rate of annual allowance to 3% from 2% was expected. It reduces the period over which the allowance is given from 50 years to 33 years, which is closer to the typical life of a modern commercial building. However, it does not address a fundamental design flaw which means that, absent any balancing allowance, a tenant holding a 5 to 15 year lease will only obtain a deduction for 15 to 45% of their SBA qualifying expenditure, unless they extend or renew their lease.

VAT Domestic Reverse Charge on Construction Services

The Government has confirmed that the introduction of the domestic reverse charge on construction services, initially announced in previous budgets, will be implemented with effect from 1 October 2020.


This measure was originally supposed to come into effect from 1 October 2019, but was delayed by twelve months in order to allow businesses time to adapt. Contractors should be preparing for this change which will likely require changes to systems and processes.

VAT - Partial Exemption and the Capital Goods Scheme

Following a call for evidence, HMRC are collating and reviewing responses on simplification measures to partial exemption and the VAT Capital Goods Scheme. The result of this will be published in due course.


Partial exemption and the Capital Goods Scheme are some of the most complex parts of the VAT legislation, creating cost and risk for businesses. Brexit provides the opportunity to review these rules and potentially simplify them without the need to align to the EU VAT rules and will be welcomed by business.

Annual Tax on Enveloped Dwellings (ATED) - Annual Chargeable Amounts for 2020/21 Chargeable Period

ATED charges increase automatically each year in line with inflation. The ATED charges will rise by 1.7% from 1 April 2020 in line with the September 2019 CPI.

Annual Tax on Enveloped Dwellings (ATED) - Relief for Housing Co-operatives

The Government has announced it will introduce new reliefs from ATED and the 15% Stamp Duty Land Tax (SDLT) rate for certain qualifying housing cooperatives. The Government will consult on draft legislation in summer 2020 and legislate in Finance Bill 2020-21.


It is welcomed that the Government are looking to provide reliefs for certain taxpayers who were not within the original ambit of the measures.

SD, SDRT – Stamp Taxes on Unlisted Shares Consideration Rules

The Government consulted in 2018-19 on extending the market value rule, which already applies to transfers of listed shares to, unlisted shares. Draft legislation was subsequently published to extend the rule fairly narrowly to transfers to connected companies where some or all of the consideration is in the form of an issue of shares. The measure will be implemented for both stamp duty and stamp duty reserve tax with effect from Royal Assent 2020. There will also be a relaxation of the rules to ensure that most capital reduction partition demergers will incur only a single stamp duty charge.

This measure is intended to prevent tax avoidance on corporate reorganisations of private companies using the procedure known as “swamping”, sometimes prior to the sale or flotation of a company.


This measure was expected to be implemented and we welcome the fact that it is to be limited to a small range of transactions and that the Government has taken account of representations.

Entrepreneur’s Relief

As was widely anticipated, Entrepreneurs’ Relief has been scaled back. The overall lifetime limits for gains to which the relief can apply will reduce from the current £10 million to £1 million per person with immediate effect.


There were suggestions that Entrepreneurs’ Relief might have been abolished completely, therefore even a dramatic restriction in the available relief may be viewed as good news by some.

Business Rates - Retail Discount

As previously announced, for the year from 1 April 2020, a business rates retail discount for properties with a rateable value below £51,000 in England will increase from one third to 50%. This will be expanded to include cinemas and music venues. To support small businesses in response to COVID-19 the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses for 2021.

Business Rates - Review

The Government will conduct a fundamental review of business rates in autumn with the objective of: a) reducing the overall burden on businesses; b) improving the current business rates system; and c) considering more fundamental changes in the medium-to-long term.


It is widely acknowledged that the business rates system needs a fundamental overhaul and as such the Government review is welcomed.

Public Works Loan Board (PWLB) Lending Limit

The Government will consult on revising the terms of PWLB lending to potentially limit local authorities buying investment assets for yield and instead ensure that local authorities continue to invest in housing, infrastructure and frontline services.

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Euan Sutherland

Senior Managing Director, Head of EMEA Tax Advisory