Capital allowances

The Chancellor was keen to remind potential investors of the recent changes made to the UK capital allowances regime. “Full expensing” was introduced in the Spring Budget last year and provides a 100% first-year allowance for main rate expenditure on the provision of new plant and machinery (or a 50% first-year allowance for special rate expenditure). It was initially a temporary measure (lasting until April 2026) but was made permanent in the Autumn Statement 2023 with the aim of stimulating business investment.

Expenditure on plant and machinery for leasing is currently excluded from the regime, but today the Chancellor announced that full expensing will be extended to leased assets when fiscal conditions allow. Draft legislation will be published for consultation shortly.

Creative industries

The government is also eager to show its support of the UK's creative industries by announcing a package estimated to provide over GBP 1 billion in additional tax relief over the next five years. With the aim of ensuring that the UK screen industry remains competitive internationally and reaches its full potential, the government will introduce a new UK Independent Film Tax Credit at a rate of 53% on qualifying film production expenditure and increase the credit rate for visual effects costs in film and high-end TV to 39% (and remove the 80% cap for qualifying expenditure for visual effects costs). This will apply to expenditure incurred from 1 April 2024, for films which commence principal photography on or after 1 April 2024, and can be claimed from 1 April 2025. In addition, the Chancellor announced that eligible film studios in England will receive a 40% reduction on gross business rates bills until 2034. This will be implemented as soon as possible and will be backdated to apply from 1 April 2024.

Further, from 1 April 2025, the rates of theatre tax relief, orchestra tax relief and museums and galleries exhibitions tax relief will be permanently set at 40% for non-touring productions and 45% for touring productions and all orchestra productions. The museums and galleries exhibitions tax relief will also be made permanent.

Real Estate

There were also several announcements relevant to residential property transactions.

In relation to Stamp Duty Land Tax (SDLT), the main annoucement related to Multiple Dwellings Relief (MDR). MDR was originally intended to support investment in residential property and the private rented sector. However, an external evaluation has found that it does not meet these aims and therefore it was announced that it will be abolished from 1 June 2024. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. The government has decided not to take forward any changes to the SDLT rules relating to mixed-property purchases at this time.

In addition, with effect from 6 March 2024, registered providers of social housing in England and Northern Ireland will not be liable for SDLT when purchasing property with a public subsidy and public bodies will be exempted from the 15% rate of SDLT on purchases of UK residential property over GBP 500,000. The measure does not apply in Scotland or Wales as they operate their own separate land transaction taxes.

The higher rate of Capital Gains Tax of 28% for residential property disposals will be reduced to 24%. The aim is to incentivise disposals of second homes, buy-to-let properties and other residential property where it is not possible to benefit from Private Residence Relief. The lower rate will remain at 18% and Private Residence Relief will continue to apply on disposals of main residences.

The government will also abolish the Furnished Holiday Lettings tax regime from 6 April 2025 to remove the tax advantage for landlords who let short-term furnished holiday properties over those who let residential properties to longer-term tenants.

VAT

The government announced that there will be reforms to the penalty regime for late submission of tax information, late payment of tax and HMRC interest harmonisation. The changes will apply with effect from 1 January 2023 following Royal Assent of the Spring Finance Bill 2024.

After many years of remaining static, the VAT registration threshold will be increased from GBP 85,000 to GBP 90,000 (and the deregistration threshold increased to GBP 88,000) from 1 April 2024.

There was no reintroduction of the VAT Retail Export Scheme at this time. However, the government has committed to consider the findings of the Office for Budget Responsibility on this alongside industry representations and broader data. It is also welcoming any further submissions on the Office for Budget Responsibility's findings and we will need to await further announcements on whether this will be reintroduced in due course.

Energy and the environment

The government is extending the energy profits levy by one year to 31 March 2029. It also confirmed in December 2023 that it would be introducing a Carbon Border Adjustment Mechanism (CBAM) from 1 January 2027. This will apply to relevant goods imported in the aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron and steel sectors. Further details on the CBAM will be subject to consultation later in 2024.

Stamp taxes on shares

Notable in its absence was any update on the potential stamp taxes on shares modernisation, a consultation which closed in June 2023. However, coninciding with the Budget, HMRC updated various pages in its Stamp Taxes on Shares Manual to reflect the changes to the legislation on the 1.5% charge and the Growth Market Exemption, which were legislated for in the Finance Act 2024.

Other announcements

Following a consultation last year, legislation has recently been enacted in the Finance Act 2024 to introduce the new merged R&D tax relief regime (modelled on the existing R&D expenditure credit) with effect for accounting periods beginning on or after 1 April 2024. It has now been announced that HMRC will establish an expert advisory panel to support the administration of R&D reliefs and improve the functioning of the R&D tax reliefs system.

A summary of responses was published in relation to the consultation on the scope and design of a tax regime for a new Reserved Investor Fund (RIF). The RIF is designed to complement and enhance the UK’s existing funds regime by meeting industry demand for a UK-based unauthorised contractual scheme with lower costs and more flexibility than the existing authorised contractual scheme. The RIF will be open to professional and institutional investors and it is anticipated that it will be particularly attractive for investment in commercial real estate. The government intends to begin legislating for this in the Spring Finance Bill 2024.

Following an announcement in November 2023 that the UK (along with 48 other countries) would implement the Organisation for Economic Co-operation and Development's Crypto-Asset Reporting Framework and amendments to the Common Reporting Standard in 2027, the government has launched a consultation to seek views on how best to do that. The consultation closes on 29 May 2024.

The next Tax Administration and Maintenance Day, which has been scheduled for 18 April 2024, is when we can expect to see details of any other proposals related to tax policy development and the administration, maintenance and reform of the UK tax system.

Please contact us, or your regular Baker & McKenzie contact, should you have any questions or want to discuss further.