The property sector has been at the heart of the economic maelstrom both in the UK and in the US. The linked financing structures have resulted in problems for the financial sector that have seeped into the broader economy as the quality of underlying security has been brought into focus.

Baker Tilly analysis

Both the commercial and residential property sectors are feeling the strain and a number of measures have been proposed:

• Reduction/removal of the empty property rates charge
• Funding support for social housing
• Extension of the Stamp Duty Land Tax (SDLT) holiday (£175,000) for residential properties until 31 December 2009, and to reduce the scope of the linked transaction rules to reduce the cost of purchasing portfolios of residential properties
• Easing the rules relating to Real Estate Investment Trusts (REITs) (and the Property Authorised Investment Funds -  PAIFs) to enable those structures to deal with falling values, increased financing costs, reduced rental yields, etc.

Stamp duty land tax (SDLT) changes

The changes are, in the main, fine tuning of the legislation.  The proposal to extend the disclosure of tax avoidance scheme will almost certainly lead to counter measures being enacted as schemes are reported and the extent of their use becomes clearer.

A number of changes are to be made to Stamp Duty Land Tax (SDLT).

• The SDLT holiday announced by the Chancellor in September 2008 is to be extended until 31 December 2009. After this time, the residential threshold will revert to £125,000.
• To extend favourable SDLT treatment to purchasers under shared ownership schemes operated by profit-making Registered Providers of Social Housing, where the scheme is assisted by public subsidy
• To extend the SDLT relief for purchases by Registered Social Landlords (RSLs) to profit-making Registered Providers of Social Housing, where the purchase is assisted by public subsidy
• A simplification - from 22 April 2009 – of the SDLT treatment of purchasers under rent to shared ownership (‘Rent to Home Buy’) schemes
• A change in rules - from 22 April 2009 - for the SDLT relief for leaseholders of flats purchasing the freehold of their block under a statutory right of leasehold enfranchisement
• Introduce reliefs from charges to SDLT where people raise finance by issuing alternative finance investment bonds backed by land assets. Further legislation will set out the capital allowances consequences in relation to arrangements covered by the SDLT and capital gains tax measures
• Commence consultation on specific measures to extend the Tax Avoidance Disclosure Regime to cover SDLT on high value residential property.  The consultation includes options to extend the rules to identify users of all disclosed SDLT schemes.

Impact on the market

There are, in addition, many changes that affect a wider range of commercial enterprises, which will in turn have an impact on the property sector. At a technical level, there has been considerable discussion over the introduction of a ‘principles-based’ approach to countering tax avoidance on the transfer of income streams. The approach is to treat as income the sums received for the transfer of the right to income where there is no disposal of the underlying asset. There has been concern that the legislation may strike unintended targets, such as the assignment of leases. It is inevitable that the official guidance material to be published by HMRC will be scrutinised closely.

In the meantime, the further charges to be imposed in the form of the supplementary rates that fund projects such as Crossrail and the Community Infrastructure Levy will continue to pose serious challenges to the property market.