天美传媒 guest blog: The Fiscal Incentives Group
While further details on the Your First Home initiative will take the Budget headlines, there were also significant VAT updates allowing zero-rating of bare land disposals to Relevant Housing Associations rather than the current Golden Brick point.
Otherwise, it was a fiscally constrained Budget with few tax incentives for home builders, developers and investors. Despite two consultations and concrete proposals developed with HM Treasury (HMT), the expected Land Remediation Relief (LRR) reforms did not materialise, with HMT citing cost concerns.
However, the stability of no change brings positives, so here are my Top Ten Tax Tips to help home builders benefit from the existing regimes and the changes announced.
Land Remediation Relief
Tip 1: Having survived two abolition attempts, LRR now has a certain future, so claim what you are entitled to:
- Home builders and developers are relatively starved of tax relief compared with property investors, and LRR remains the only corporation tax relief available to them.
- Eligible costs include environmental and geotechnical abnormal 鈥渞emediation鈥� costs, but not everything labelled 鈥渞emediation鈥� qualifies 鈥� e.g. mineshaft grouting and general earthworks 鈥� so take care.
- Companies ultimately receive a 12.5% subsidy (14.5% if subject to Residential Property Developer Tax) via reduced tax, claimed in the year you sell the plots rather than when the expenditure is incurred (the proposed reform that never materialised!).
Tip 2: If you have never claimed, or may have underclaimed, use the full four-year time limit to claim retrospectively.
- The four years run from the year end in which you sell the remediated land 鈥� e.g. for a Dec-26 year-end, it is still possible to claim on plots sold in periods from Dec-22 onwards.
- Qualifying costs vary massively but benchmark at around 拢2,000 per plot on average across thousands of sites.
- Seek advice on the process for submitting revised claims and then wait for the tax rebate, plus interest on the overpaid tax.
Tip 3: PRS investors developing a site hit the 鈥渢ax jackpot鈥�: Up to 37.5% of remediation costs can be reclaimed in the year incurred. This is the most generous relief in the Taxes Acts, but the claim must be made within two years (not four) of the end of the accounting period in which the qualifying capital expenditure is incurred.
Tip 4: Beware of grants. Where a grant is paid towards remediation costs, LRR cannot be claimed on the subsidised portion. We recommend a waterfall clause be inserted into the agreement, so the grant goes first towards non-qualifying costs and only then towards qualifying costs thereafter, thereby maximising subsidies and improving viability.
R&D Expenditure Credits
Tip 5: Many home builders do R&D without realising it, for example when:
- Designing Future Homes-compliant standard house types;
- Establishing robust building remediation designs and construction sequences, or undertaking associated fire performance tests;
- Developing software beyond the capability of publicly available software;
- Undertaking 鈥渟ite-based R&D鈥� to overcome complex site constraints.
Staff time spent resolving these technical challenges qualifies for a 20% R&D tax credit, treated as additional income that boosts EBIT.
Tip 6: For accounting periods commencing on or after 1 April 2024, contracted-out R&D can also be included, provided you, rather than the supplier, anticipated and contemplated the need for R&D within the agreed scope. Greater awareness of the R&D scheme within the technical and commercial teams is essential.
Tip 7: If you have not claimed R&D in any of the last three years, you currently need to submit a Claim Notification Form (CNF) generally within six months of the period end. The Budget announced that this requirement will be withdrawn for claims submitted after 1 April 2027. So, bizarrely, unless the Finance Bill says otherwise, a December year-end company is currently out of time to claim for its period ending December 2025 (the window closed in June), but by waiting until 1 July 2027 it can claim for that same period under the then-default general two-year time limit.
Capital Allowances
Tip 8: Home builders rarely encounter capital allowances, but two situations warrant awareness:
- Office fit-outs, PRS investment or, say, timber frame manufacturing facilities: capital allowances are available on virtually all associated costs, with relief ranging from 100% for plant and machinery main pool fixtures to 3% Structures and Buildings Allowances (SBA) on the residual cost.
- Apartments with ground floor retail: if you let the retail space before selling the long leasehold to an investor, you must give the buyer a statement of qualifying SBA costs. This is not straightforward, so please seek advice.
Tip 9: Purchasing a new or second-hand commercial property is likely to carry capital allowances. Thoroughly interrogate the seller鈥檚 responses to the s.33 capital allowances pre-contract enquiries so your full entitlement, and the seller鈥檚 information requirements, are confirmed before completion.
Tip 10: There are no time limits on historic capital allowances claims. Review past expenditure, claim via an amended tax return and wait for the tax repayment 鈥� with interest!