The UK Chancellor of the Exchequer’s Autumn Statement on 22 November 2023 brought several key announcements impacting the real estate sector. While the Statement broadly focused on boosting business investment, reducing national debt, and supporting British business, a few notable changes are specifically relevant to real estate.
Full Expensing for Capital Allowances
A significant development is the permanent implementation of “full expensing” for capital allowances. This measure, which replaced the “super-deduction” in the Spring Statement 2023, allows companies to write off the full cost of qualifying plant and machinery investments in the year of purchase. This includes a wide range of assets, notably those qualifying as “fixtures” within buildings, such as machinery, computers, tools, vehicles (excluding cars), and office, construction, and warehouse equipment.
Originally a temporary measure intended for expenses incurred within a three-year period starting 1 April 2023, this change has now been made permanent. It provides a 100% first-year allowance for main rate assets and a 50% first-year allowance for special rate assets, including long-life assets. This change is a boon for companies investing in physical infrastructure, offering immediate tax relief and incentivizing capital investment.
Construction Industry Scheme (CIS) Reform
The Autumn Statement also includes significant reforms to the Construction Industry Scheme (CIS). The new regulations will remove most payments from landlords to tenants from the CIS scope, addressing a common issue for landlords making “works contributions” to tenants. Additionally, in efforts to combat tax fraud in the construction sector, compliance with VAT obligations will now be included in the CIS gross payment status compliance test. This means subcontractors could lose their gross payment status immediately if found providing incorrect VAT returns or information, marking a stricter stance against tax evasion.
Real Estate Investment Trusts (REITs) Amendments
The Statement also confirmed changes to the UK’s Real Estate Investment Trusts (REITs) regime. Following draft legislation published in July 2023, these amendments primarily clarify rule applications and aim to make the regime more attractive to institutional investors. The changes will take effect from the Royal Assent of the Autumn Finance Bill 2023, with some applying to accounting periods ending on or after 1 April 2023 or retrospectively.
Additional Changes
Other announcements include the introduction of five new investment zones with extended tax reliefs, the extension of the business rates relief scheme for the retail, hospitality, and leisure sectors to 2024/25, and a 6.7% increase in Annual Tax on Enveloped Dwellings (ATED) charges from 1 April 2024. These changes reflect the government’s broader strategy to stimulate economic growth and support various sectors, including real estate.
Conclusion
The UK Autumn Statement 2023’s focus on encouraging investment and streamlining tax processes has several implications for the real estate sector. From the permanence of full expensing in capital allowances to the reforms in the CIS and updates to the REIT regime, these measures indicate a supportive stance towards real estate investment and development. As these changes unfold, stakeholders in the real estate sector should consider how these adjustments might impact their investment strategies and operational frameworks.
Speak to a member of our Rooks Rider Solicitors Real Estate team for advice and assistance.
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