Budget Report 2010 – Social HousingThe Chancellor used the 2010 Budget to reiterate the Government’s commitment to supporting the housing sector and home buyers through the global downturn. In support of this it was announced that a two year Stamp Duty Land Tax (“SDLT”) relief will be introduced for first time buyers purchasing residential property up to a value of £250,000. In addition, the temporary freeze in the Standard Interest Rate applied to the Support for Mortgage Interest scheme has been extended until December 2010 and targeted help via the Mortgage Rescue Scheme and Homeowners Mortgage Support will continue into 2011. As part of the drive to ensure local authorities bring forward a sufficient supply of viable land, the Government will publish results from comprehensive checks of local land supply strategies, and from 2010-11 the relevant elements of the Housing and Planning Delivery Grant will be withheld from local authorities that fail to produce satisfactory five-year land supply assessments. Following the Budget the Government will also consult on detailed plans to replace the council housing finance system with a self-financing system. The Government is considering responses to the recent Housing Benefit consultation and the emerging findings from the low-income working households’ research with a view to introducing reforms. However, as a prelude to further reform, it has been announced that, from October 2011, the highest rents across the country, including the most expensive 8 per cent of properties in London, will be excluded from the calculation of the Local Housing Allowance in each area; this addresses the concern that the current approach to calculating Local Housing Allowance rates has resulted in very high payments to a small number of tenants in the most expensive areas. We have summarised below key taxation proposals which could affect housing associations arising from the Budget Report delivered on 24 March 2010. KPMG’s general commentary on the 2010 Budget Report can be found at the following link: Substantial donorsOf particular note was the disappointing announcement that the anticipated new rules on substantial donors would not be introduced in the forthcoming Finance Bill. It was instead confirmed that the informal consultation with stakeholders would continue to explore the proposed new purpose test. KPMG will continue to be part of the HM Revenue & Customs (“HMRC”) working party looking at the development of these new rules and we will provide further updates in due course. Extending UK charity tax exemptions and reliefs to EU organisationsLegislation will be introduced to extend the UK charitable tax exemptions and reliefs to organisations in the EU, Norway and Iceland that satisfy the new definition of “charity” for UK tax purposes. This announcement effectively implements the European Court of Justice ruling in the Hein Persche case. Whilst the extension of the UK charitable tax reliefs in this way is unlikely to have a significant impact on the social housing sector, the new definition of "charity" will be relevant to the extent that social housing groups wish to establish charitable entities in the future. The new definition of “charity” for UK tax purposes will include the requirement for charities to demonstrate that their trustees, directors and managers are “fit and proper” persons. Corporation tax – Capital allowancesIt is common place for charitable housing associations to own non-charitable subsidiary companies; the announcements relating to capital allowances may be applicable to such companies and therefore of interest to charitable housing associations. Since 1 April 2008, the majority of businesses in the UK have been able to claim the annual investment allowance (“AIA”) on up to £50,000 of qualifying expenditure, effectively giving tax relief for 100% of the first £50,000 of qualifying additions. The Chancellor announced that the AIA will be increased to £100,000 for qualifying expenditure incurred from 1 April 2010. The list of energy-saving items qualifying for enhanced capital allowances has also been extended. VATVAT rate remains at 17.5%As expected, the Chancellor did not announce any changes to VAT rates in the Budget. However, there is widespread speculation that the standard rate will rise soon after the General Election, whatever the make-up of the next government. Under EU law, the standard rate of VAT can be set between 15 and 25 per cent. The average in the rest of the EU is now 20.14 per cent, and some countries have already announced further rises in the summer, so any UK government should be able to argue that a rise in the VAT rate will not hurt UK competitiveness. Housing associations should be planning now for these increases. Measures to consider include:
VAT recovery and partial exemptionIf VAT rates rise, it will become even more important that Housing Associations recover all of the VAT they are entitled to. For VAT that is partially recoverable, many housing associations have struggled to agree a partial exemption method with HMRC. In recognition of this, a Partial Exemption Framework has been prepared with HMRC which is due to be published shortly. This is a welcome development and should enable housing associations to agree a fair method to recover VAT on general overheads in a much shorter timeframe going forward. Cost sharing exemptionWorking together with other housing associations, for instance in a procurement consortium, can lead to substantial savings for all involved. However, if VAT has to be charged between the parties, this can eliminate these savings. Scope exists within EU law for certain cost-sharing between not-for-profit bodies to be exempt. The Government has announced in the Budget that it will work with charities and other affected sectors to consider the potential for introducing such an exemption into UK law. KPMG has been working with representative bodies in several sectors, including housing, to lobby for this change. We are pleased that the Government has now made a firm commitment to look at this matter further. Penalty regimeSeveral indirect taxes, including VAT, are being brought into line with the penalty regime for direct taxes. There will now be separate penalties for late filing of returns, as well as late payment of the tax due. Both sets of penalties are on sliding scales and recognise that some returns are filed monthly and others quarterly. Other indirect tax changesFollowing recent legal challenges, some services provided by the Royal Mail will now become subject to VAT, including services from Parcelforce, which may increase postage costs for some housing associations. These changes will come into effect after January 2011. A new indirect tax has been introduced - landline duty - at a rate of 50 pence per line per month. While this is charged to the owners of the telephone system, it is expected that they will seek to pass this cost on to consumers. Green taxes continue to increase. In particular, the rate of landfill tax has risen sharply, increasing from £40 per tonne this year, to £48 from 1 April 2010 and £56 per tonne in 2011. These rises are likely to increase cost pressures on developments. SDLTThe Chancellor announced SDLT changes which will have a direct and immediate impact on house-buyers. Two year holiday from SDLT for first time buyersIt was announced that there would be changes to the SDLT threshold on purchases of properties by first-time buyers. The changes mean that many people buying homes from housing associations, whether on the open market or as part of shared ownership arrangements will be able to make SDLT savings. At present SDLT is not chargeable where the purchase price for residential property is £125,000 or less. The rate is 1 per cent for residential purchases where the consideration is more than £125,000 and up to £250,000. From midnight on 24 March 2010 for a period of 2 years the SDLT threshold will increase from £125,000 to £250,000 for purchases by first-time buyers. A first-time buyer is someone:
This means that people who have never owned a property before may benefit from the relief, but in the case of joint purchasers where one was previously a home-owner the relief is not available. The properties which the first time-buyer may acquire in order to benefit from the relief are:
The relief can also be claimed on shared ownership transactions where the purchaser has elected to have the SDLT charged on the market value of the property at the time that they purchase the first tranche. The relief is not available if they have not made the market value election, but instead have chosen to have the transaction taxed as a lease with duty on the rent and the premium. A new rate of SDLT for residential property over £1 millionThere will also be an increase in the highest rate of SDLT. Legislation in Finance Bill 2010 will increase the highest rate to 5 per cent on a purchase of residential property where the consideration exceeds £1 million. This change will be introduced from 6 April 2011. We would expect the definition for “residential” property used in the current legislation to apply also in respect of the new rules. If this is the case, then there should be no charge on transfers of 6 or more dwellings in a single transaction, even where the total consideration exceeds £1 million, or where the transfer involves bare land which is not in the process of being developed for residential use. Employment TaxEmployer Supported Childcare VouchersA relaxation will be made to the conditions applicable to childcare vouchers and directly contracted childcare schemes delivered through salary sacrifice arrangements, for those employees at or near the National Minimum Wage (“NMW”). Where salary sacrifice arrangements have been introduced some employers have excluded employees with earnings at or near the NMW. Where such arrangements are made without being “available generally” to all employees, the exemption from being a chargeable benefit will not apply and the provision of childcare will be taxable. The Government now plans to relax the “available generally” condition in respect of low-paid employees so that the exemption from taxability will apply to salary sacrifice arrangements for childcare vouchers or directly contracted childcare. This applies retrospectively for the tax year 2005/06 and subsequent tax years. Company Cars and Vans - Zero Emission vehicles and benefit chargeTwo measures will be introduced to change the chargeable benefit in kind on company cars and vans for five years from 6 April 2010 to 5 April 2015. The first change is full relief from the chargeable benefit in kind on company cars and vans which cannot produce more than 0gm per km CO2 engine emissions under any circumstances when driven. The second change reduces the chargeable benefit in kind on company cars which have an approved CO2 emissions figure of exactly 75g per km or less. Arrears of Tax - PAYELegislation in the Finance Bill 2010 will introduce powers for HMRC to require a financial security from employers who have a history of serious non-compliance in terms of paying late or not paying their pay as you earn (PAYE) income tax. The detail will be set out in regulations, which will be published for consultation before they are made. The measure will affect those who are determined not to pay and will not affect those who need time to pay and who make payment arrangements with HMRC. The measure introduces a new criminal offence where a person required to give a security fails to do so. If the person is found guilty of the offence they may be fined up to £5,000. The intention is that the new powers will come into effect from 6 April 2011. ContactsIf you have any queries regarding any of the announcements in the 2010 Budget Report, please contact one of the national Social Housing team below or your local KPMG contact.
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Unsubscribe | Privacy | Legal © 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. The Budget Report proposals and other tax changes are summarised on these pages. The Budget Report proposals may, however, be amended significantly before enactment. The content of this communication is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining liability to tax or determining investment strategy in specific circumstances. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG LLP, 8 Salisbury Square, London, EC4Y 8BB Designed and produced by UK Design Services. |
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