The Autumn Budget delivered on its promise to put housing at centre-stage, but there were some material changes tucked away in the detail. 

As expected, housing was a major focus for the Chancellor, and it was encouraging to see an emphasis on supporting the construction labour market in order to achieve the ambitious home-building target of 300,000 additional homes per annum by mid-2020s (Kersten Muller, Real Estate Partner at Grant Thornton UK LLP has provided some insightful commentary on the implications of the budget on the housing market here). The other key theme resonating throughout the statement was one of fairness, with the Chancellor’s focus quite clearly being on establishing a level playing field for all UK taxpayers – this was perhaps most evident in the proposed changes to the treatment of Non-Resident Landlords.

This change was given no airtime in the Chancellor's speech, but it is a fundamental change to the tax treatment of property and will have come as a shock to many foreign investors. 

With the announced measures covering a much wider array of topics than anticipated, the focus in the media may well be less on tax and may instead cover a more rounded approach to Government funding. We have picked our 5 key messages from a property tax perspective.

1.Taxation of Non-Resident Landlords (“NRLs”) 

The biggest surprise from the Chancellor came in the form of gains on disposals of UK commercial property. Broadly, where UK commercial property is disposed of by non-residents after April 2019, any resulting gains will be brought into the scope of UK tax (with expected targeted exemptions for institutional investors). Importantly, these rules will be extended to the disposals of interests in “property-rich companies” (where immovable property makes up 75% or more of a company’s gross asset value at disposal). Further technical detail has been published on the Government’s website (here) setting out transitional arrangements and an anti-forestalling rule which will apply from the date of the Budget.

Further (albeit expected) changes will come into effect from April 2020, when property income generated by non-resident companies will also become subject to UK corporation tax, rather than UK income tax as is currently the position under the NRL regime.

These changes are a major shock to foreign investors in the UK and are likely to significantly change the investment landscape in UK property, including the structuring of holding UK properties. We expect many investors to looking at UK investment structures, such as REITs. We may also see a change in the profile of investors as a result.

2. Indexation Relief for companies

Another key announcement was the change to indexation relief. Companies have historically been able to benefit from a further deduction when calculating their chargeable gains to take into account the effect of inflation over the period of ownership. Individuals, however, have not been able to benefit from this additional deduction. In his plight for fairness, the Chancellor has announced that the treatment of companies and individuals will be made consistent going forward. The availability of Indexation allowance will therefore be frozen for companies with effect from 1 January 2018 and no relief will be available for inflation accruing after this date in calculating chargeable gains made by companies.

3. SDLT 

The Chancellor was keen to address the challenges of home ownership being faced by the younger generation, and emphasised many times in his speech that the "dream of ownership" should be a reality for all. In an attempt to reduce the cost of purchasing a house for first time buyers, announced that from 22 November, SDLT on properties up to £300,000 purchased by first time buyers will be abolished. For properties valued up to £500,000, partial relief will be available for the first £300,000 of the purchase price. It is hoped that this measure will mean that first time buyers in the London area will still be able to benefit from the change. Indication from the Government is that the measure will result in savings in SDLT for 95% of all first time buyers.

On top of the changes being implemented for first time buyers, amendments to the existing rules for the higher rates of SDLT were also announced which will impact the acquisitions of additional dwellings. These are a combination of targeted reliefs and anti-avoidance measures. Importantly, these updates have been introduced with effect from 22 November.

4. VAT threshold

Although it was widely expected that the VAT threshold could have been reduced in Autumn Budget, the Chancellor confirmed that in fact the threshold will instead be maintained at £85,000 for the next two years from April 2018. A consultation will, however be undertaken by the Government on the design of the threshold shortly and we await further details.

5. Empty Homes Premium

In a bid to increase housing supply in the market and encourage the owners of empty properties to bring them back into use, the Chancellor announced an increase to the current Empty Homes Council Tax Premium (which is enforceable by local authorities) from 50% to 100%. It is hoped that this policy, in addition to the wider housing package announced by the Chancellor, will help to tackle the growing housing crisis.