What The Autumn Statement Means For Commercial Real Estate
The chancellor of the exchequer's autumn statement was delivered against a weighty context. Little more than a year ago, then-Chancellor Kwasi Kwarteng delivered a 'mini budget' that sent markets into turmoil. Inflation, though still high, has now reduced, but the landscape still features high interest rates and a continuing cost-of-living crisis.
“This statement lies in the context of a rapidly approaching election,” RSM partner of real estate tax Adrian Benosiglio said. “As well as the need to please voters where the Conservatives are behind in the polls, the chancellor needs to be seen to be prudent. What we have is an autumn statement that, while underwhelming, contains both positives and disappointments for taxation of the real estate sector.”
Bisnow spoke to Benosiglio, RSM Tax Director Eugenia Campbell and Head of Real Estate and Construction Stacy Eden about what the statement means for real estate.
The Wider Economy
The autumn statement’s headline changes were arguably not focused on business support, Campbell said.
“This was a statement for workers, although the impact of fiscal drag and inflation will mean that in real terms the benefit may be limited,” Campbell said. “Many of the measures were aimed at putting more money in the hands of people rather than businesses, as reflected by the cuts in national insurance contributions, which impact all households.”
Planning Reforms
It was no surprise that the planning system featured in the autumn statement. Many property companies will welcome the announcement that major business planning applications will soon be processed on faster timelines, as planning is one of the major disincentives to progress a scheme, Eden said. However, he said the announcement did not go far enough.
“The chancellor’s announcement is an acknowledgment that the UK’s planning system is holding back development,” he said. “We don’t have enough houses, which is pushing up rents and house prices. While the chancellor has recognised the problem, he has only touched the edges of reform.”
The industry will also be disappointed in the lack of change to stamp duty land tax, Eden said.
“Reducing stamp duty would have increased liquidity in a difficult market,” he said. “Currently, people are put off moving because of SLDT, which is reducing the economic contribution of the housing sector in general. I wouldn’t be surprised if this is an area the Chancellor revisits in March.”
Capital Allowances
One of the headline changes for business was to make the temporary capital allowance of 100% permanent, Benosiglio said. Corporate landlords with commercial property will continue to be able to deduct the full cost of investing in machinery and equipment from their tax bill, a measure that was put in place in April for three years.
“This is good news for property companies with commercial property, as a large part of their expenditure is on integral features,” he said. “They will continue to receive a 50% first-year capital allowance deduction and then 6% per year, rather than this lower rate over the life of the asset. Making this measure permanent will encourage long-term investment and is beneficial for many in the industry.”
Other areas of good news include the extension of financial incentives for investment zones by five years. Furthermore, temporary changes to the construction industry scheme have now been made permanent, which means developers who qualify for gross construction status through a clean tax record can pay a main contractor 100% of their fee, rather than giving 30% to HM Revenue & Customs.
However, there is no hiding the fact the chancellor’s decision not to scrap the inflation-linked rise in business rates will impact the high street in a difficult economic environment, Eden said.
Housing
Though planning reforms will have a positive impact on the wider housing market, landlords and homeowners will all be disappointed that there was no announcement to address mortgage interest relief, Campbell said. This remains at a flat rate of 20% against the tax on profits before finance costs. With increasing mortgage interest rates in recent months, some landlords are paying tax on commercial losses because of the way the rules work.
“Landlords were hoping for the easing of rules which currently restrict how much of the cost of finance can be offset against a tax bill, but there was nothing,” she said. “The UK faces a growing residential rental property crisis with a lack of supply and rocketing rents, but the current tax system means people are increasingly reluctant to enter the market.”
The restriction on tax relief for finance costs and other pressures on private landlords are forcing some of them to leave the market, which is increasing rents at over 10% per year, Campbell said. With fewer houses available for letting, rents are increasing, but high interest rates mean first-time buyers struggle to get on the housing ladder even though these landlord finance cost measures were introduced to boost homeownership for this group.
Manufacturing And Artificial Intelligence
The chancellor announced several measures aimed at boosting the UK’s manufacturing and artificial intelligence outputs. He also revealed measures to reduce planning constraints to expand the infrastructure for electric vehicle charging points, as well as consulting on plans to boost the rollout of EV charging stations.
“The manufacturing sector may finally be getting the long-term strategy it has been calling out for,” Eden said. “There could well be a boost to the real estate sector from this. The spring statement could do well to create a similar long-term strategy for real estate, which benefits all aspects of the sector.”
Read RSM's detailed analysis of the autumn statement.
This article was produced in collaboration between RSM and Studio B. Bisnow news staff was not involved in the production of this content.
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