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Property and construction - Budget 1998
Property and construction Budget 1998
Keywords Construction, Labour, Property, Rent
The Budget was expected to include major changes which were only partly revealed in the Chancellor's speech, say chartered accountants Moores Rowland. The real detail came through in the budget papers which were released the moment Gordon Brown sat down. He has introduced a number of measures which will affect the property and construction sectors in different ways.
First, the rental income of companies will be subject to change. The Chancellor announced changes to simplify the corporation tax rules applicable to the taxation of income from property. From 1 April 1998:
all UK rentals will be taxed as a single source;
capital allowances will be taken into account when computing Schedule A profits or losses;
rental business losses are to be relieved in the same way as management expenses;
further changes are proposed for income from overseas property; and
transitional rules will apply to ensure no omissions of income or expenditure.
Robert Dowling, a partner with Moores Rowland, says: "These changes bring the rules broadly into line with those for individuals and are part of the preparation for self-assessment for companies which will take effect on 1 July 1999."
The second change involves labour costs. The Government has closed a loophole in the PAYE legislations that allowed construction workers paid by agencies to escape the normal PAYE/NIC charges. From 1 April this year, employment agencies will be required to deduct PAYE and NIC, as if they are employers. This should prevent a two-tier cost of labour.
There have also been changes made to landfill tax. A concession was announced from 1 October 1999, for inert waste used in the restoration of land fill sites and quarries. The standard rate of landfill tax will increase to £10 per tonne from 1 April 1999. Robert Dowling asks: "Will the new rules increase the 'fly' tipping problems or encourage recycling? We will have to wait and see."
The last two changes made in this Budget involve Stamp Duty and VAT. Housebuilders, particularly in the South East, will be affected by Stamp Duty increases for house transactions of more than £250,000 and this increase will undoubtedly concern the commercial property sector. Effective immediately, the increases are to:
2 per cent where the price is £250,000 to £500,000; and
3 per cent where the price exceeds £500,000.
It remains to be seen whether these changes will create "steps" in the housing market. One final change is the reduction in the rate of VAT on the installation of energy-saving materials from 17.5 per cent to 5 per cent.
On balance, the effect of this Budget on the construction and property industry is minimal. Gordon Brown managed to silence many of the doom merchants and dampen the pre-Budget hype.