Businesses and individuals up and down the country listened in, keen to understand the extent of the government’s ongoing support in rebounding from the effects of COVID-19.
Sentiment amongst the Real Estate fraternity appears to be largely positive, as some level of support was provided for almost all areas of property ownership. The headline elements set to affect the UK Real Estate market are as follows:
Corporation Tax Increase to 25%
Corporation tax is set to rise to 25% from April 2023, a 6% hike from the 19% currently paid on all profits.
Extension to Business Rates Holiday
The temporary reduction to VAT rates applicable to retail, leisure and hospitality businesses has been extended, with the rate remaining at 5% until 30 September 2021, before rising to 12.5% where it will remain until a return to the standard 20% on 1 April 2022. This should undoubtedly have a positive impact on rental payments by those businesses affected.
Relaxation of Loss Carry Back Rules
The Budget has granted a temporary extension allowing a three year carry back of trading losses (suffered in the period between 1 April 2020 and 31 March 2022) to be offset against profits in prior years. Again, this should benefit both Real Estate owners and their tenants from an overall cash flow and profitability standpoint.
130% “Super-Deduction” on certain Capital Expenditure
From 1 April 2021 until 31 March 2023, this super deduction will apply to qualifying expenditure on new plant and machinery, whilst a first year allowance of 50% will also be recoverable for expenditure, which would usually have qualified for special rate relief, such as lifts and air conditioning. We expect this to trigger a noticeable increase in Real Estate owners investing in these areas, taking the opportunity to upgrade plant and machinery whilst such significant incentives apply.
Announcement of Eight Freeports in England
The government has identified eight areas of the country where they are particularly keen to drive growth and investment, and in order to encourage this, they will provide a host of additional tax reliefs to qualifying businesses investing in those areas. Specific to the Real Estate sector, these benefits include an enhanced 10% rate of structures and buildings allowance (usually 3%) when constructing or renovating non-residential property within those areas, and an enhanced first-year capital allowance providing 100% relief for businesses investing in plant and machinery for use in Freeports. Again, we expect to see an increase in Real Estate investment in these Freeports in response to this change.
What does this mean for my insurance?
With a number of significant and mostly temporary tax changes, perhaps the obvious area of insurance that will be most impacted by these updates is that of Tax insurance. We expect to see a noticeable uptick in the use of Tax insurance when Real Estate owners buy and sell assets and/or portfolios to protect against greater areas of uncertainty caused by these rule changes. The Tax insurance market has grown significantly in recent years alongside the Warranty and Indemnity (W&I) insurance market, and whilst most of the insurance market is hardening, W&I and Tax insurers continue to grow. As a result of this growth, premiums are reducing, and coverage is broadening as insurers compete to grow their books in these areas.
The second key area of insurance that we see being impacted by these changes for Real Estate owners is that of construction or refurbishment insurance. With a number of these tax incentives encouraging businesses to upgrade and/or work upon existing assets, this brings with it the challenges around insurance during those works. Depending on the scope and scale of said works, building tenancy and contract duration, it may be possible to cover any exposures under the existing property insurance policy. Even if that is the case, engaging with Gallagher to ensure your appointed contractors carry sufficient levels of insurance to protect your asset is vital; and engagement is even more crucial should the works exceed existing property insurance extension limits and require specialist placement.
As always, should you wish to discuss any of the topics raised by this article, please do not hesitate to get in touch and we would be delighted to talk further.