Real Estate Bulletin - September 2022

UK mini-Budget delivers expected tax cuts and more

The new Chancellor, Kwasi Kwarteng, formally announced a raft of tax cuts and other measures in a special fiscal announcement on Friday 23 September dubbed The Growth Plan 2022. The aim of the measures is to boost growth in the economy and they represent a sea change in approach from the government following the election of Liz Truss as the new Conservative Party leader and, hence, Prime Minister.

Headline measures formerly announced by Rishi Sunak, including the increase in corporation tax to 25% and the health and social care levy (and the related temporary NIC increases) will be scrapped, marking a significant departure from the more cautious approach to government borrowing (and eventually paying it back) previously adopted. But the new Chancellor went further by cutting the basic rate of income tax a year early and abolishing the 45% additional rate of tax, rolling back changes to the IR35 system that have been unpopular with businesses and cutting stamp duty.

The focus is now very much on growing the economy to alleviate the long-term burden of government borrowing – and tax cuts are regarded as an integral measure in achieving this boost.

A further (full) Budget is still expected to take place later this year – in November or maybe December – when the broader fiscal implications of these changes (together with the government’s measures to alleviate the energy price crisis) will be commented on by the Office for Budget Responsibility (OBR), whose duty it is to examine and report on the sustainability of the public finances. In the meantime, it is generally accepted that the government’s approach involves a significant gamble in cutting the government’s tax receipts at a time when government borrowing is set to increase at an unprecedented rate and just as it becomes more expensive to do so.

The tax cutting measures are just one part of the Growth Plan, which also includes measures relating to planning, financial services, business regulation, immigration, industrial relations, childcare and the benefits system. However, in the longer term, the tax system is seen as key to delivering the annual 2.5% growth target set by the government. As such, it appears that the tax announcement made on 23 September will just be the first of potentially many to come to tailor the system to deliver growth. To this end, the Growth Plan commits the government to conducting a review to identify where it can go further to reform the tax system to ensure it supports growth, while also being simpler and better for families. The Chancellor will report on this in 2023.

Read more on the measures announced here.

September 2022 Building Safety Act update

The Building Industry Scheme and development and building control prohibition sections of the Building Safety Act have been brought into force.

In short, the commencement of these sections allows the government to begin the process of creating regulations to introduce Building industry Scheme(s) that will require members to remedy defective buildings and/or contribute to the cost of doing so; and to impose prohibitions on those in the industry as it considers necessary, including those who may choose not to sign up to such schemes. We will know more detail once the regulations are published – it is presently uncertain whether there will be a consultation process in relation to these, but we will provide a further update as soon as more information becomes available.

You can read more about this here.

VAT and break fees

The Inner House of the Court of Session has held that a tenant was required to pay VAT in addition to a break fee when exercising its option under a break clause in February 2021: Ventgrove Ltd v Kuehne + Nagel Ltd [2022] CSIH 40. The Court has overturned the decision of the lower court, holding that the correct VAT position had been clear and there was no legitimate expectation arising from HMRC guidance to the contrary.

The decision on the VAT treatment of break fees aligns with HMRC’s most recent guidance in Revenue & Customs Brief 2 (2022). The decision is also relevant to taxpayers’ ability to rely on HMRC guidance in circumstances where it is superseded by later court decisions.

You can read more about this decision here.

Economic Crime and Corporate Transparency Bill

On 22 September 2022, the government introduced the Economic Crime and Corporate Transparency Bill (the Bill). This follows the Economic Crime (Transparency and Enforcement) Act (ECTEA) that arrived earlier this year and introduced (among other things) the register of overseas entities.

The Bill introduces a number of measures set out in the White Paper on corporate transparency and register reform published in February 2022.

Key changes proposed by the Bill include:

• an expansion of the remit of the Registrar of Companies so that she will have new powers including the right to reject and query filings, remove certain information from the register and proactively share information with law enforcement, regulatory bodies and other public authorities;
• identity verification for all new and existing company directors, People with Significant Control (PSCs) and anyone else making filings with the Registrar;
• an expansion of the circumstances in which use of a company name can be prohibited, including names that could be used to facilitate crimes, names suggesting connections with foreign governments and names containing computer code;
• enhancing the information available on shareholders by requiring companies to record the full names of shareholders in the register of members;
• abolishing the requirement for companies to maintain local registers of directors, secretaries and PSCs;
• measures to improve the financial information available on the register through amendments to the filing requirements of small companies and micro-entities;
• reforms to limited partnership legislation to prevent their misuse by enhancing transparency requirements; and
• various measures to improve enforcement of economic crime, including new investigative and enforcement powers for law enforcement and for regulators of the legal profession.

There are also amendments to certain criminal offences under ECTEA in relation to the register of overseas entities and providing false statements plus other technical amendments.

A more detailed update will follow.