Tax implications of Budget 2017

This article by Deloitte, the Federation’s tax adviser, summarises the main tax announcements that may be of interest to members.

12 December 2017

On 22 November, Philip Hammond delivered his second Budget of 2017 and first Autumn Budget. The announcement included a number of significant funding and policy measures intended to stimulate housebuilding, as well as a number of significant tax related announcements affecting the sector.

Stamp Duty Land Tax

The big news was that the Chancellor has, as expected, introduced a relief from Stamp Duty Land Tax for first time buyers, up to the value of £300,000. This includes Stamp Duty Land Tax relief for first time buyers of residential properties paying up to £500,000, with the first £300,000 exempt from Stamp Duty Land Tax. The Chancellor also introduced minor changes to the application of the higher rate 3% charge. 

Limiting the relief to acquisitions for up to £500,000 will mean a buyer marginally exceeding that limit will have an additional Stamp Duty Land Tax liability of £5,000. This means that the cliff edge distortion removed from residential property in 2014 is re-introduced at this one point.

It is also worth noting that first time buyers’ relief was not thought to be a success last time it was put in place between March 2010 and March 2012. HMRC’s own research suggested that the total number of additional transactions was only about 2,000 and concluded that it had a ‘small impact’.

The Government will be hoping that the outcome is different this time. The estimated cost of the relief to the Exchequer in 2018/19 of £560m compares with a cost of only £150m in 2010/11.

The research also found that the majority of the benefit is capitalised into a higher price and so benefits the seller more than the first time buyer.

This change does not apply to Scotland, which has its own Land and Buildings Transaction Tax, and only applies up to April 2018 in Wales, which is set to have its own system from then onward. It will be interesting to see whether Scotland and Wales introduce a similar relief in due course. 

For more announcements on Stamp Duty Land Tax, see tax announcements – Budget 2017

VAT

As announced, the Government will publish a technical consultation on draft legislation in spring 2018 for a VAT reverse charge to prevent fraud in the provision of labour in the construction sector. A final draft of the legislation and guidance will be published by October 2018, and the measures will take effect from 1 October 2019. Before then, on 1 December 2017 the Government published a summary of responses to the consultation which was announced at the Spring Budget 2017.

As a result of feedback received from the National Housing Federation (supported by Deloitte) and other industry bodies, the Government has decided there should be a long lead in time in respect of this change. This would be necessary to allow businesses sufficient time to make the necessary changes to systems, invoicing, etc. HMRC has also confirmed that the reverse charge will not apply to supplies to the final customer – it remains to be seen therefore exactly how these rules will apply to housing associations and their in-house development companies. 

There will be an opportunity to engage with HMRC in respect of the draft legislation and guidance, and the Federation – supported by Deloitte – will continue to contribute to this process. Please contact John Butler if you would like to contribute to this discussion with HMRC.

For more announcements on VAT, see tax announcements – Budget 2017

Business tax

The corporation tax rate is still expected to fall to 17% by 2020 from the current 19%.

For more announcements on business tax, see tax announcements – Budget 2017

Employment tax

Rates and allowances

  • The Government is committed to raising the personal allowance to £12,500 by 2020. It will rise from £11,500 for the current tax year to £11,850 for 2018/19.
     
  • The Government is committed to raising the higher rate threshold to £50,000 by 2020. Excluding Scotland, it will rise from £45,000 to £46,350 for 2018/19. 
     
  • As previously announced, to ensure there is enough time to work with Parliament and stakeholders on the detail of reforms that will simplify the National Insurance contributions (NIC) system, the Government has confirmed that it will delay implementing a series of NICs policies by one year to April 2019. These are the abolition of Class 2 NICs, reforms to the NIC treatment of termination payments, and changes to the NICs treatment of sporting testimonials.
     
  • NIC rates for 2018/19 remain the same as for 2017/18 but the primary threshold has increased from £157 per week to £162 per week, and the upper earnings limit has increased from £866 per week to £892 per week.
     
  • The combined income tax and NICs changes mean that an employee earning £50,000 per annum will pay £236 less over the course of the tax year.

For more announcements on employment tax, see tax announcements – Budget 2017

Business rates

The Chancellor announced that the annual inflationary uplift which is currently linked to retail price index would be linked to consumer price index from 2018, saving ratepayers 0.9%. This brings forward this move from the date previously announced of 2020.  

For more announcements on business rates, see tax announcements – Budget 2017

Evasion, avoidance and compliance

The government is investing another £155 million in additional resources and technology for HMRC. This investment is forecast to help bring in £2.3 billion of additional revenues by allowing HMRC to tackle avoidance and evasion.

For more announcements on evasion, avoidance and compliance, see tax announcements – Budget 2017