Spring Budget 2024 - Real Estate sector update

The 2024 Spring Budget announced on 6 March 2024 had some key points for the real estate sector.

Commercial real estate

The UK's rate of corporation tax remains at 25% and the changes introduced last year to allow 100% deductions for certain types of capital expenditure (particularly relevant to fixtures) remain in place (known as full expensing). The Government is considering extending "full expensing" to leased assets such as leased plant and machinery, but cannot yet afford to do so.

Investment zones 

Six new investment zones were announced: Greater Manchester, Liverpool City Region, North East England, South Yorkshire, West Midlands and Tees Valley which offer tax reliefs to attract businesses to these regions including full business rates relief, full SDLT relief on commercial property and enhanced structures and buildings allowance relief.

Investing in real estate

There is a new fund structure for commercial real estate known as a ‘Reserved Investor Fund’ that will be introduced. This is to be a new authorised contractual scheme that should encourage the onshoring of real estate fund management. The aim is for it to be cheaper to establish than many existing types of funds such as REITs but with the benefit of tax transparency. It is hoped it will encourage long-term investment in commercial real estate.

Purpose Built Student Accommodation (PBSA) sector, Private Rental Sector (PRS) investors and senior living sector

A surprise and unwelcome change was the announcement that Multiple Dwellings Relief (MDR) is being abolished from 1 June 2024. 

MDR is a relief from stamp duty land tax (a tax on acquisition of real estate in the UK) where the purchaser is buying more than two dwellings in a transaction.

HMRC has been consulting (since November 2021) on perceived abuses of MDR but those abuses were in part found to be due to retrospective claims for relief promoted by unregulated advisers who searched HM Land Registry and then targeted recent purchasers of family homes with granny annexes. The current rules have led to an influx of cases on the nuances of the application of the rules over the last few years, but the abolition will also impact investor purchasers in PBSA, PRS and senior living.  

The announced policy change was further to an external evaluation, which found that there is "no strong evidence that the relief plays an important role in supporting residential property investment and that it has a minimal positive impact on overall housing supply." 

It is disappointing that the relief has been abolished completely rather than being narrowed in scope. In the previous consultation which closed for comments back in February 2022, other options to make the relief more fit for purpose were considered. However, following the external evaluation it seems getting rid of it in its entirety was decided to be the simplest course of action (and an easy revenue raiser). 

However, there is still the option to apply the (generally lower) non-residential rates to acquisitions of six or more dwellings in one transaction (or a series of linked transactions) which is likely to mean that it is only smaller portfolio acquisitions that will be impacted. 

If a transaction exchanged on or before 6 March 2024 it can still continue to benefit from the relief regardless of when it completes (subject to there being no variation to the contract). Otherwise, a transaction needs to complete on or before 31 May 2024 for MDR to still be available to be claimed.

Sales of second homes

The rate of capital gains tax on the disposal of second homes will reduce from 28% to 24% with effect for disposal from 6 April 2024.

Furnished holiday lettings

The special rules for furnished holiday lettings will cease from April 2025 so holiday letting owners will no longer benefit from capital allowances on furniture and furnishings, roll-over relief from capital gains tax or enhanced deductibility of debt.

Other minor changes

SDLT changes to allow first time buyers who use nominee structures (for example, people fleeing domestic abuse) to access the lower rates for first time buyers and the reduction in rates for public bodies or publicly funded purchasers of residential property were also announced with immediate effect.