2012 Budget: property implications | Practical Law

2012 Budget: property implications | Practical Law

An update on the 2012 Budget proposals affecting property. (Free access.)

2012 Budget: property implications

Practical Law UK Legal Update 0-518-5418 (Approx. 22 pages)

2012 Budget: property implications

by PLC Property
Published on 21 Mar 2012 • England, Wales
An update on the 2012 Budget proposals affecting property. (Free access.)
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As was widely expected, George Osborne announced measures in the 2012 Budget that will affect those owning high-value homes (worth £2 million or more). The changes focus on introducing new and increased rates of Stamp Duty Land Tax (SDLT) and also on preventing avoidance of SDLT by putting homes into off-shore corporate envelopes. The SDLT changes may help fund some tax cuts, and address what Mr Osborne referred to as morally repugnant aggressive tax avoidance.
From a property perspective, the 2012 Budget is otherwise largely about measures intended to help business to flourish so that the country can "earn its way in the world" and return to prosperity and a competitive global position. Once again, the planning regime is blamed for loss of business to the UK: "You can't earn your future if you can't get planning permission". Despite a continual programme of reform over the last ten years, the government wants to further simplify and streamline the planning regime. This may boost development but many fear the potential erosion of the countryside.
The British Property Federation will be disappointed that its campaign for empty property rate relief did not result in any budget announcement but the industry is likely to have its fingers crossed for a future announcement on the scrapping of the CRC Energy Efficiency Scheme following the promised review, and a more simple tax on the carbon associated with the energy consumption in buildings.
For all our Budget coverage, including practice area summaries, see PLC 2012 Budget (this page will populate with links to our coverage from Thursday morning).
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Money's too tight to mansion...

As was widely expected, George Osborne announced measures in the 2012 Budget that will affect those owning high-value homes (worth £2 million or more). The changes focus on introducing new and increased rates of Stamp Duty Land Tax (SDLT) and also on preventing avoidance of SDLT by putting homes into off-shore corporate envelopes. The SDLT changes may help fund some tax cuts, and address what Mr Osborne referred to as morally repugnant aggressive tax avoidance.
From a property perspective, the 2012 Budget is otherwise largely about measures intended to help business to flourish so that the country can "earn its way in the world" and return to prosperity and a competitive global position. Once again, the planning regime is blamed for loss of business to the UK: "You can't earn your future if you can't get planning permission". Despite a continual programme of reform over the last ten years, the government wants to further simplify and streamline the planning regime. This may boost development but many fear the potential erosion of the countryside.
The British Property Federation will be disappointed that its campaign for empty property rate relief did not result in any budget announcement but the industry is likely to have its fingers crossed for a future announcement on the scrapping of the CRC Energy Efficiency Scheme following the promised review, and a more simple tax on the carbon associated with the energy consumption in buildings.

Defined terms

Stamp duty land tax

SDLT rates

New SDLT rate for high-value residential purchases by individuals

The government has announced that a new rate of 7% SDLT will be charged on the purchase of residential property where the chargeable consideration is more than £2 million. Purchase, for these purposes, includes freehold acquisition, assignment or the payment of a lease premium.
The new rate applies to transactions where the effective date (normally completion) is on or after 22 March 2012. Transitional provisions will aim to ensure that the old rates will continue to apply to contracts entered into before 22 March 2012 which are completed on or after that date.
Legislation will be introduced in the Finance Bill 2012, amending section 55 of the Finance Act 2003, to introduce the new rate. The old rate of 5% will continue to apply to properties where the chargeable consideration is more than £1 million but not more than £2 million.
For details of the rates and thresholds, see Practice note, SDLT and stamp duty rates (for land): General rates of SDLT.
(See Budget Report, para. 1.195 and Overview, pages 10, A105 and B10.)

New SDLT rate for high-value residential purchases by non-natural persons

The government has announced that with immediate effect, a new rate of 15% SDLT will be applied to the purchase of residential properties by certain types of non-natural persons where the chargeable consideration is more than £2 million.
Section 116 of the Finance Act 2003 defines residential property as one that is suitable for use as a dwelling. Certain types of dwelling, such as accommodation for school pupils and the armed forces, will be excluded from the meaning of "dwelling" for these purposes. Halls of residence, care homes, hospitals and hospices are already excluded from the definition.
Non-natural persons include companies, collective investment schemes (including unit trusts) and partnerships, that include a non-natural person as a partner. There is no indication of which types of non-natural person will be caught by this new rate although property developers and corporate trustees will be excluded from the charge in certain (yet to be identified) circumstances.
Transitional rules will apply where the contract was completed and signed by all the parties on or before 21 March 2012.
(See Budget Report, para 1.195 and Overview, pages 10 and A107.)

Abolition of SDLT reliefs

In the 2011 Budget, the government announced that it intended to abolish certain reliefs in the Finance Bill 2012 after a period of consultation. This followed the review of reliefs by the Office of Tax Simplification (OTS) whose report was published on 3 March 2011 (Office of Tax Simplification: Review of tax reliefs: final report (March 2011)).
The government has now confirmed that it will proceed with the abolition of the following SDLT and stamp duty reliefs for transactions in land from 6 April 2013:
  • Stamp duty relief for certain leases granted by social landlords.
  • Stamp duty relief for certain transfers to registered social landlords.
  • Stamp duty relief for shared ownership schemes.
  • Stamp duty relief for visiting forces and allied headquarters.
  • Stamp duty relief for disadvantaged areas.
  • SDLT relief for disadvantaged areas.
  • Exempt instruments (certain specified and certified instruments were exempt from £5 fixed stamp duty, but the fixed rate of duty was abolished in 2008).
  • Partial relief for company acquisitions (this relief dates from the time when there were two different rates of stamp duty; one for land transfers and one for transfers of shares).
In relation to the first five stamp duty reliefs listed above, the OTS noted that although theoretically these reliefs still apply to contracts entered into but not completed before the introduction of SDLT on 1 December 2003, it was unlikely that there would be any outstanding claims for relief.
For more information on disadvantaged area relief, see Practice note, SDLT relief for land transactions in disadvantaged areas.
(See Budget Report, para. 2.196 and Overview, page 15.)

Anti-avoidance schemes: GAAR to apply to SDLT

The government has announced that with immediate effect, it will close down future SDLT avoidance schemes.
In addition, the government has announced that the general anti-abuse rule (GAAR) will now apply to SDLT. The final report of the GAAR study group, led by Graham Aaronson QC, was published on 21 November 2011. The report recommended the introduction of a moderate rule, targeting highly abusive artificial schemes that are regarded as intolerable, but not affecting the large body of responsible tax planning. For more information see Legal update, Aaronson recommends targeted GAAR.
The Aaronson report did not recommend applying the GAAR to SDLT initially but said that it could be extended to SDLT at a later stage.
A consultation will be issued in summer 2012 with a view to introducing legislation in the Finance Bill 2013.
(See Budget Report, paras. 2.198 and 2.199 and Overview, page 24.)

Clarifying whether sub-sale rules apply to the grant of an option

The government intends to outlaw a particular variety of SDLT avoidance scheme that purports to rely on the sub-sale rules under section 45 of the Finance Act 2003.
SDLT sub-sale relief may apply where:
  • The seller (A) enters into a contract to sell land to the buyer (B) for a price (£X). That contract is to be completed by a conveyance.
  • Before that contract is substantially performed or completed, B "transfers" to C its rights under that contract. This transfer could be by sub-sale, assignment or any "other transaction". As a result of the transfer, C can call for the conveyance of the land to C.
Where land is sold from A to B and then from B to C, the normal rules require B to pay SDLT on £X and C to pay SDLT on the total consideration it pays. If the sub-sale rules in section 45 apply and the two transactions complete at the same time, B does not pay SDLT at all. Only C is obliged to pay SDLT on its transaction at the appropriate rate and time. For more information, see Practice note, SDLT and contracts for the transfer of land: Transfers of rights: sub-sales, assignments and other transactions.
It was not clear whether "other transaction" would cover the grant of an option to purchase land.
A widely-marketed SDLT avoidance scheme involves B agreeing to purchase land from A, and at the same time, granting to C an option to purchase the land from B at some point in the future. That option is often exercisable only after a considerable delay, though it might be exercisable at the then market value. In practice, it may be unclear whether it is intended that the option would ever be exercised by C. The aim of this scheme is to invoke the sub-sale rules, so that SDLT is not payable on the price paid by B for the land. The government does not believe that this scheme will work and has said that it will challenge the use of any such scheme.
To put the matter beyond doubt, the 2012 Budget proposes draft legislation to amend section 45 of the Finance Act 2003 to exclude from "other transaction" the grant or assignment of an option. This amendment takes effect from 21 March 2012.
(See Budget Report, para. 2.200 and Overview, pages 12 and A119.)

Lease simplification

In 2008, representations were made to HMRC asking for clarification of certain parts of the rules on abnormal rent increases and changes to others. In October 2008, HMRC indicated that it hoped to make changes to the abnormal rent regime in the Finance Act 2009. For further information, see Legal update, SDLT and rent: the fifth anniversary - what does it mean for tenants?.
The government has announced that it will issue a consultation on simplifying the rules that apply to lease arrangements involving abnormal rent increases. It will also consult on simplifying the rules that apply to the following:
  • The substantial completion of an agreement for lease.
  • A lease that continues after a fixed term.
An informal consultation will take place with the SDLT Working Group in April 2012 with the aim that legislation will be included in the Finance Bill 2013.
(See Budget Report, para. 2.175 and Overview, page 24.)

Tax avoidance

Proposed annual charge on high-value residential properties owned by non-natural persons

The government will issue a consultation on proposals to introduce an annual charge on residential properties valued at over £2 million that are owned by certain non-natural persons. There is currently no indication as to which types of non-natural person are to be caught by the proposed charge or how the monies will be collected.
The government aims to bring this annual charge into force in April 2013.
(See Budget Report, para. 1.195 and Overview, page 24.)

CGT regime to extend to disposal of residential property owned by non-natural persons

As part of the government's various tax avoidance measures (see Stamp duty land tax), the government wants to extend the capital gains tax regime to gains made by non-resident, non-natural persons on the disposal of UK residential property and "shares or interests in such property".
There are currently no further details available, but the government will consult on the details of this measure in conjunction with its proposals for an SDLT annual charge for high-value residential properties owned by non-natural persons.
The government will introduce legislation in the Finance Bill 2013 to implement the change, which will come into effect in April 2013.
(See Budget report, paras. 1.195 and 2.75 and Overview, para. 2.7.)

Property related income tax anti-avoidance measures

On 13 March 2012, the government announced two property related income tax anti-avoidance measures, both with immediate effect:
  • Agricultural property loss relief: this denies income tax relief for certain expenses related to agricultural land incurred with a main purpose of tax avoidance.
  • Post-cessation property business tax relief: this denies post-cessation income tax relief for expenses of a property business incurred with a main purpose of tax avoidance.
For more information see Legal update, Tax relief for property business losses: anti-avoidance rules.
(See Overview, page 11.)

VAT

VAT: correcting anomalies and closing loopholes

The government has announced that it intends to correct a number of anomalies along the "borderlines" of certain VAT exemptions and VAT zero-ratings. These borderline areas are ones where there are fine lines between goods and services that are either exempt or zero-rated for VAT purposes, and those where the standard rate applies. In some cases, these distinctions have been manipulated to create unfair advantages. Also, the uncertainty and complexity of the rule creates costs and uncertainty for both businesses and HMRC.
As part of this exercise, the government has launched a consultation, VAT: Addressing borderline anomalies (VAT consultation), seeking views on these anomalies and the proposals for dealing with them. The measures that are of particular interest to the property industry are:
For more information on VAT and property, see Practice note, VAT and property: an outline of the rules.
The consultation ends on 4 May 2012.

Self-storage

Self-storage providers that allocate their customers with a particular area in which to store items, are subject to the usual rules on VAT for land supplies. This means that the default position is for the supply to be exempt from VAT, but the supplier may elect to change this position.
Around 30% of this sort of self-storage is currently subject to VAT at the standard rate, which allows the storage providers to reclaim the VAT they expend on constructing or buying their storage facilities. Some of these storage providers are using avoidance arrangements to convert the taxable supplies they make back to exempt supplies, allowing them to keep the VAT that they have claimed back, while charging customers at similar rates to competitors who have not waived the exemption from VAT.
Other types of storage providers, who do not offer their customers discrete areas in which to store items, have to charge VAT at the standard rate to their customers.
The government proposes to withdraw VAT exemption from all self-storage supplies made on or after 1 October 2012. The Finance Bill 2012 will include anti-forestalling measures, to prevent businesses from entering into avoidance arrangements. These measures will apply to supplies made on or after 21 March 2012.
The change is not intended to remove the VAT exemption from supplies of premises that will be used as a self-storage facility, such as a lease to a company offering self-storage facilities to its customers.
HMRC has identified that there may be some scope for using the mandatory taxation of self-storage facilities for tax avoidance within a group of companies. The government therefore proposes that the supply of self-storage facilities between connected persons will remain exempt and, where appropriate, any option to tax will be disapplied by existing anti-avoidance legislation.
The government has also noted that it is common for insurance to be offered alongside self-storage facilities and that some suppliers may try to increase the costs of such insurance as a way of reducing the costs attributed to storage. HMRC will monitor the situation and the government may apply a higher rate of insurance premium tax (equal to the standard rate of VAT) to such insurance if there is evidence of this sort of value shifting.
(See Overview, page A89 and VAT consultation, section 4.)

Alterations to listed buildings

A protected building is a listed building or scheduled monument that is (or will be, once works have been completed) any of the following:
  • A dwelling.
  • A residential building such as a nursing home or student accommodation.
  • A building used by a charity for non-business purposes, such as a place of worship or village hall.
Approved alterations to protected buildings are zero-rated, while repairs to such buildings are subject to VAT at the standard rate. Alterations to other buildings (including dwellings) are standard rated. While some alterations restore or enhance protected buildings, zero-rating also applies to alterations, such as extensions, that may have no relevance to preserving the building's heritage.
The current system arguably creates an incentive to alter protected buildings, rather than to repair them. Also, the distinction between repairs and alterations can be unclear.
The government intends to remove zero-rating from building materials and construction services supplied in the course of making approved alterations to protected buildings.
Zero-rating can also apply to the first grant by a developer of a "major interest" (a sale or the grant of a long lease) in a substantially reconstructed protected building. The first grant of a major interest in a reconstructed protected building, where 60% or more of the reconstruction costs are approved alterations, is zero-rated. The government proposes to withdraw zero-rating for this sort of reconstruction, although zero-rating will still be available for buildings reconstructed from a shell.
The changes will have effect from 1 October 2012. Anti-forestalling legislation will be included in the Finance Bill 2012 to prevent avoidance.
There will be transitional arrangements for approved alterations to protected buildings, where a signed contract for the works was in place before 21 March 2012 (the date of the 2012 Budget). Such alterations made before 20 March 2013 will still benefit from zero-rating.
Similar arrangements apply where a protected building is being substantially reconstructed. If a signed contract for supplies that would qualify as approved alterations was in place before 21 March 2012, then the first grant of a major interest in the building may still benefit from zero-rating if made before 20 March 2013 (and if the other criteria are met).
(See Overview, page A93 and VAT consultation, section 7.)

Hairdressers' chair rental

The supply of facilities to hairdressers (commonly known as "chair rental") is not considered to be a supply of land and is subject to VAT at the standard rate. This is because the supply consists of a number of things beyond merely a licence to use a chair in a hairdressing salon, and these additional facilities (such as towel laundering, the use of waiting areas and appointment booking) are not merely incidental to the supply of land.
While the majority of salons accept this position, a significant minority still argue that chair rental is an exempt supply. The government intends to clarify the law by amending the Value Added Tax Act 1994, with effect from 1 October 2012.
(See Overview, page A97 and VAT consultation, section 5.)

Holiday caravans

Some types of caravan are subject to VAT at the standard rate, while others are zero-rated. At the moment, the standard rate of VAT applies to caravans that can legally be towed by a family car, but this means that many holiday caravans (including static caravans) are zero-rated. According to the VAT consultation, zero-rating was only ever intended to apply to caravans that could be used as full residences.
With effect from 1 October 2012, only caravans that are designed and constructed for continuous, year round occupation will be subject to VAT at the zero rate. This will be judged by whether the caravan meets British Standard BS 3632 (or equivalent), which means that the caravan is suitable for use as residential accommodation.
(See Overview, page A101 and VAT consultation, section 6.)

Withdrawal of VAT reduced rate for energy-saving materials in charitable buildings

Charitable buildings will be removed from the scope of the reduced rate of VAT for the supply and installation of energy-saving materials. The 2012 Budget announces this change without a clear explanation of why the change is being made.
The reduced rate of VAT will continue to apply to the supply and installation of energy-saving materials in residential accommodation, including residential accommodation operated by charities. Legislation will be introduced in the Finance Bill 2013.

Capital allowances

Enhanced capital allowances in Enterprise Zones

The government has announced that enhanced capital allowances will be available for designated sites in:
  • The London Royal Docks Enterprise Zone.
  • The Enterprise Zones in Irvine, Nigg and Dundee in Scotland.
  • Deeside, North Wales.
This follows announcements in 2011 of enhanced capital allowances in English Enterprise Zones, and in February 2012 in an additional zone in Humber. In 2011, the government announced that:
On 6 December 2011, the government published draft legislation introducing 100% first year allowances for companies investing in plant or machinery for use in designated areas within Enterprise Zones (see Legal update, Draft Finance Bill 2012 legislation: key business tax measures: Capital allowances: Enterprise Zones).
The government has announced in the 2012 Budget that allowances in such zones will be available from 1 April 2012.
(See Budget Report, para. 2.103 and Overview, page 5.)

Energy-saving and water-efficient technologies and enhanced capital allowances

The government has announced, following on from draft legislation published on 6 December 2011 (see Legal update, Draft Finance Bill 2012 legislation: key business tax measures: Capital allowances: Feed-in Tariffs and the Renewable Heat Incentive), that:
  • The list of designated energy-saving and water-efficient technologies qualifying for enhanced capital allowances will be updated by Treasury Order during summer 2012, subject to State aid approval. The main change will be the inclusion of a new technology category: heat pump driven air curtains.
    For a summary of the various enhanced capital allowance schemes aimed at promoting environmental measures, see Practice note, Enhanced capital allowances (ECAs) for investment in environmental technologies.
  • From April 2012, expenditure on plant and machinery for which tariff payments are received under the feed-in tariffs or Renewable Heat Incentives schemes will not be entitled to enhanced capital allowances. In addition, expenditure on solar panels will be designated as special rate expenditure for capital allowances purposes from April 2012 (see Capital allowances: fixtures).
(See Budget Report, para. 2.104 and Overview, page 7.)

Business Premises Renovation Allowance

The government has confirmed that, from April 2012, the Business Premises Renovation Allowance (BPRA) will be extended for a further five years until April 2017. Changes will also be made to the scheme to ensure continuing compliance with State aid rules. This follows the government's announcement in the 2011 Budget and draft legislation published on 6 December 2011 that it would extend the BPRA for a further five years from 11 April 2012 (it was due to end on 10 April 2012) (see Legal updates, 2011 Budget: property implications: Business premises renovation allowance and Draft Finance Bill 2012 legislation: key business tax measures: Business premises renovation allowances: extension).
BPRA is a tax allowance provided as an incentive to renovate derelict or unused properties in disadvantaged areas and bring them back into use. It aims to stimulate investment by allowing a 100% first-year capital allowance on qualifying expenditure associated with the conversion, refurbishment or renovation of qualifying business properties that have been vacant for at least 12 months. Qualifying buildings should have been last used for a commercial purpose and must be retained for seven years after completion of the renovation works, to avoid clawback of any tax gains on the property.
(See Budget Report, paras. 2.102 and 2.109 and Overview, page 5.)

Capital allowances: fixtures

The government has reaffirmed its announcement, in the 2011 Budget and following the publication of draft legislation on 6 December 2011 (see Legal update, Draft Finance Bill 2012 legislation: key business tax measures: Capital allowances: mandatory pooling of fixtures) that, from April 2012, the availability of capital allowances to a purchaser of fixtures will be conditional on businesses following a new statutory mechanism for fixing a value for fixtures within two years of a sale. A technical amendment to the legislation will also enable plant and machinery capital allowances to be claimed by a new owner on any fixtures expenditure that has not been relieved under the BPRA scheme (see Business Premises Renovation Allowance).
For information on the issues that need to be considered when drafting or negotiating a clause in a property sale contract dealing with plant and machinery capital allowances, see Practice note, Property contracts: dealing with plant and machinery capital allowances.
(See Budget Report, para. 2.105 and Overview, page 5.)

Flat conversion allowances

The government has confirmed that it will proceed with the abolition of Flat Conversion Allowances (FCAs) from 6 April 2013. This follows the government's announcement in the 2011 Budget and draft legislation published on 6 December 2011 for inclusion in the Finance Bill 2012 (see Legal update, Draft Finance Bill 2012 legislation: key business tax measures).
Briefly, a 100% FCA is available to enable property owners and occupiers to claim up-front tax relief on the whole of their capital spending on the renovation or conversion of vacant or under-used space above shops and other commercial premises to provide flats for rent.
(See Budget Report, para. 2.196 and Overview, page 15.)

Reliefs

Capital Gains Tax: Single Payment Scheme

The government has announced that it will preserve CGT roll-over relief for farmers and companies carrying on a farming business who dispose of, or acquire entitlements under the Single Payment Scheme (SPS).
The SPS was introduced by Council Regulation (EC) 1782/2003 (Regulation 2003) and replaced most existing crop and livestock payments from 1 January 2005. Under the SPS, farmers are allocated payment entitlements that, subject to conditions, entitle them to receive the Single Farm Payment (SFP). The SPS is not linked with production from land and can be transferred independently from the land from one person to another, for example by sale, lease, gift or inheritance.
Regulation 2003 was repealed on 1 January 2009 and replaced with Council Regulation (EC) 73/2009 (Regulation 2009). SPS entitlements under Regulation 2009 do not qualify for roll-over relief, because the roll-over relief legislation defines SPS entitlements in terms of Regulation 2003. The effect of this is that disposals and acquisitions of entitlements under the current SPS are no longer included under the classes of assets that are eligible for CGT roll-over relief.
The government intends to legislate to ensure that farmers are not disadvantaged by losing their existing right to claim CGT roll-over relief when they dispose of or acquire entitlements to SPS payments.
The revisions will be retrospective and will have effect on or after 1 January 2009.
(See Budget Report, para. 2.77.)

Grants for giving up agricultural land: repeal of relief

As part of the Office of Tax Simplification (OTS) review of reliefs, the government has announced that it will abolish certain relief exemptions in the Finance Bill 2012, from 6 April 2013. This will include abolition of the relief from CGT received on grants by individuals for giving up agricultural land.
Section 27 of the Agriculture Act 1967 (AA 1967) sets out circumstances under which particular grants can be made for giving up agricultural land. The schemes offering grants under AA 1967 have lapsed and there are no plans to make new grants. The relief is no longer necessary and is being repealed.
(See Budget Report, para. 2.196.)

Lease premium relief

The government will consult on an informal basis on the potential implications of amending a complex element of lease premium relief concerning the deemed tax treatment of long leases as shorter leases. Any legislation will be in the Finance Bill 2013.
(See Budget Report, para. 2.115.)

Site restoration payments

The government will introduce legislation to have effect from 21 March 2012, to prevent the exploitation of relief given for site restoration payments.
The position under current legislation is as follows:
  • Section 145 of the Corporation Tax Act 2009 (CTA 2009) gives a revenue deduction for capital expenditure on site restoration payments in the period of account in which the payment is made. Without this specific statutory provision, no deduction would be due in computing trading profits. The payment must:
    • be made in connection with the restoration of a site; and
    • be made in order to comply with a condition of a relevant licence, planning permission or planning obligation.
  • Section 168 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) provides the same form of relief for unincorporated businesses.
Legislation will be introduced in the Finance Bill 2012 to amend section 145 of the CTA 2009 and section 168 of ITTOIA 2005. The changes will introduce the following new rules:
  • Where a person makes a payment, directly or indirectly, to a connected person, a deduction will be given for the period of account in which the work, to which the payment relates, is completed.
  • A deduction will not be allowed for a payment where:
    • the payment arises from arrangements to which a person is party; and
    • the main purpose, or one of the main purposes, of the arrangements is obtaining a deduction for a site restoration payment.
(See Budget Report, para. 2.211 and Overview, pages A139 - A140.)

Council Tax

Grant for freezing or reducing council tax

On 3 October 2011, the government announced a new grant for local authorities in England that freeze or reduce their council tax in 2012-13.
85% of local authorities have accepted the government’s grant and will be freezing or reducing their council tax.
(See Budget Report, para. 1.197.)

Council tax rebate for deployed military personnel

The government will double the rate of council tax rebate (from 50% to 100%) for around 9,500 deployed military personnel by reinvesting £3 million from the Special Reserve Reduction each year.
The Special Reserve Reduction is the reduction in funding over and above the Ministry of Defence budget to reflect the end of UK combat operations in Afghanistan by the end of 2014.
(See Budget Report, para. 2.20.)

REITS

Real Estate Investment Trusts

The government will consult in 2012 on changes to the Real Estate Investment Trust (REITs) regime in relation to:
  • The role that REITs can play in supporting the social housing sector.
  • Whether to change the treatment of income received by a REIT when it invests in another REIT.
The Finance Bill 2013 will implement any such changes.
In addition, as announced in the 2011 Budget, the government will legislate in the Finance Bill 2012 for changes to the REITs regime to support investment in REITs. For more information, see:
(Budget report, paras. 2.177-178 and Overview, page 22.)

CRC Energy Efficiency Scheme

The government announced that it will consult on simplifying the CRC Energy Efficiency Scheme to reduce burdens on business. If it is not possible to deliver very significant administrative savings, the government will bring forward proposals in autumn 2012 to replace CRC revenues with an alternative environmental tax. For more information, see Legal update, 2012 Budget: environmental announcements: CRC Energy Efficiency Scheme.

Housing

Accommodation for military personnel

The government will:
  • Reduce the Special Reserve (that is, funding held over and above the Ministry of Defence budget) to reflect the end of UK combat operations in Afghanistan by the end of 2014 (Special Reserve Reduction).
  • Reinvest £100 million of the Special Reserve Reduction to improve service accommodation for up to 1,275 military personnel.
(See Budget Report, para. 2.20.)

Housing benefit

The 2012 Budget confirms the following housing benefit measures, which have been announced previously:
  • Local Housing Allowance (LHA) rates will be frozen for one year from April 2012. For details of the current LHA caps, see Legal update, 2011 Budget: property implications: Housing benefit.
  • From April 2013, the government will limit housing benefit payments to working age, social rented sector tenants who under-occupy their properties. A 14% reduction will be applied to those under-occupying by one bedroom and 25% to those under-occupying by two or more bedrooms.
  • From 2013-14, the government will make an additional £30 million per annum available for Discretionary Housing Payments.
(See Budget Report, para. 2.90.)

Housing strategy

In November 2011, the government published a new housing strategy, Laying the Foundations: A Housing Strategy for England (see Legal update, New housing strategy launched). Building on the strategy, the 2012 Budget announces that the government will:
  • Increase the "Get Britain Building" investment fund by £150 million, which should help construction firms deliver a further 3,000 homes.
  • Consult in 2012 on a social housing Real Estate Investment Trust, to support investment in the social housing sector.
In addition, the government is:
  • Supporting up to 100,000 households through the NewBuy scheme, under which mortgages will be available for a new home with a 5% deposit (see Legal update, NewBuy scheme launched).
  • Introducing a reinvigorated Right to Buy scheme (see Legal update, Final plans for reform of Right to Buy published). From 2 April 2012, there will be a higher, single discount cap of £75,000 and every home sold will be replaced on a one for one basis with a new affordable home for rent.
  • Accelerating the release of public sector land. The government will publish a progress report before summer 2012.
  • Progressing the land auction pilots, with the aim of having two sites ready for market by the end of 2012.
  • Reforming the council housing finance system, by replacing the current Housing Revenue Account subsidy system with a self-financing model. However, the government will take action if this reform is increasing public borrowing by more than was anticipated.
(See Budget Report, paras. 1.221, 2.14 and 2.177.)

Planning reform

Despite the many reforms over the last ten years, the planning system in the UK is still considered to be cumbersome, slow, expensive and bureaucratic. The government believes that the current system has resulted in investment being diverted elsewhere in Europe because of the problems in obtaining planning permission. To address these concerns, the government has announced a number of measures to streamline the planning system.
(See Budget Report, paras. 1.234 - 1.236 and paras. 2.243 - 2.248 and Implementation Update, paras. 47-64.)

National planning policy framework

In January 2011, the government announced a review of planning policy in England designed to consolidate circulars, planning policy guidance notes and planning policy statements into a single national planning policy framework (NPPF) (see Legal update, Introduction of a National Planning Policy Framework). In July 2011, the draft NPPF was published, which consolidates over 1000 pages of planning guidance into a single 58-page document. The NPPF sets out the government's key economic, social and environmental objectives for England and the planning policies to deliver them (see Legal update, Consultation on Draft National Planning Policy Framework).
The government has announced that the NPPF will be published on 27 March 2012, when it will come into force for plan-making and decisions. The NPPF will include a powerful presumption in favour of sustainable development.
(See Budget Report, paras. 1.234 - 1.235 and Implementation Update, para. 48.)

Deregulating and simplifying the planning system

The government has announced that it will:
(See Budget Report, para. 1.236 and Implementation Update, paras. 54 and 60.)

Consultation to allow the reconsideration of planning obligations agreed before April 2010

The government has announced that it will consult on proposals to allow the reconsideration of planning obligations agreed before April 2010 where development has stalled. This consultation was first mentioned in the 2011 Autumn Statement (see Legal update, 2011 Autumn Statement: property implications: Consultation to allow the reconsideration of planning obligations agreed before April 2010).
(See Budget Report, para. 2.246 and Implementation Update, para. 62.)

Implementing the Penfold review

In July 2010, Adrian Penfold (the head of planning and environment at British Land) published a report (the Penfold Review) reviewing the regimes for obtaining non-planning consents for property development projects. Non-planning consents include environmental permits, hazardous substance consents, compulsory purchase orders, listed building and conservation area consents, highways consents and building regulation consents. His recommendations aim to create greater certainty, achieve speedier decisions and reduce duplication and bureaucracy in determining non-planning consents. For more information on the Penfold Review, see Legal update, Penfold Review: final report published.
The government has implemented major reforms to the key consenting and advisory agencies involved in planning applications to give certainty to developers, including:
  • Ensuring they adhere to a 13-week maximum timescale for most non-planning consents.
  • Improving their performance in dealing with planning applications.
Government departments and agencies have put in place processes to monitor performance. Initial monitoring suggests that the 13-week timescales are being met in most categories of consent.
(See Budget Report, para. 2.248 and Implementation Update, para. 57.)

Habitats issues affecting development

In the 2011 Autumn Statement, the government announced a review of the implementation in England of the Habitats Directive (Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora) and Wild Birds Directive (Directive 2009/147/EC on the conservation of wild birds) (see Legal update, 2011 Autumn Statement: property implications: Compliance with Habitats and Birds directives). The outcome of the review will be published on 22 March 2012.
The government has announced that it will establish a Major Infrastructure and Environment Unit (MIEU), which will help developers address issues under the Habitats Directive that potentially affect nationally significant infrastructure projects.
The MIEU will:
  • Ensure that evidence plans are agreed upfront.
  • Identify whether there are any imperative reasons of overriding public interest, which might justify the development under regulation 62(1) of the Conservation of Habitats and Species Regulations 2010 (SI 2010/490)).
Relatively little information is given in relation to the MIEU in the Budget Report. It will presumably take over responsibility for advising developers on habitats issues from the Infrastructure Planning Commission, which will be abolished by the Localism Act 2011 on 1 April 2012. More details of the MEIU may emerge on 22 March 2012 when the government publishes its review.
Other measures designed to reduce unnecessary cost and delay to developers arising from habitats issues include the government's proposals to:
  • Streamline guidance.
  • Set clearer standards for evidence.
  • Change the culture of statutory bodies.
For background information on the Habitats and Wild Birds Directives, see Practice note, Habitats and wildlife: overview.
(See Budget Report, paras. 1.236 and 2.241.)

Infrastructure

Independent review: delivering growth

The government has asked Lord Heseltine to undertake an independent review of how spending departments and other relevant public sector bodies interact with the private sector, and assess their capacity to deliver pro-growth policies.
The review should conclude in early autumn 2012.
(See Budget Report, para. 1.227.)

Infrastructure delivery and Plan for Growth

The government has published an update on the progress made in delivering the 40 priority infrastructure investment projects, which it identified in the 2011 National Infrastructure Plan. The 40 projects include:
  • High Speed Two. The decision to proceed was announced in January 2012.
  • Increasing capacity and improving the performance on the A14 between Huntingdon and Cambridge.
  • Extending the Northern Hub rail scheme, by adding to the electrification of the transpennine rail route.
  • Welsh Valley lines. A final decision on electrification will be announced in summer 2012.
  • Super-connected cities. Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle have been selected to become super-connected cities. Both commercial and residential users are intended to benefit from £100 million investment in ultrafast broadband and high-speed wireless broadband.
The progress of each project is set out in Annex A to the Infrastructure delivery update (March 2012).
For background information, see Practice note, National Infrastructure Plans: construction, environment and property implications.
As part of its wish to see greater private investment in infrastructure, the government intends to develop a national roads strategy. Allied to this, the government is considering whether to undertake a feasibility study into new ownership and financing models and intends to report on progress by the 2012 Autumn Statement.
The government has also published an update on progress on the measures set out in the 2011 Autumn Statement designed to facilitate investment in UK infrastructure. The update shows that much of the promised funding has been delivered.
(See Budget Report, para. 1.219, Infrastructure delivery update (March 2012) and Implementation Update.)

Investment in core cities

The government proposes to make up to £150 million available from 2013-14 for large-scale projects in core cities to be financed through tax increment financing (TIF). TIF enables local authorities to borrow against future growth in business rates. Details on a competition to allocate funding will be announced in the coming months.
A White Paper on proposals to give local authorities TIF powers was proposed in the Spending Review 2010. See PLC Property trends and developments tracker: Tax increment financing.
(See Budget Report, para. 1.225.)

Aviation

The government will publish a consultation on aviation strategy later in the spring. The consultation will explore the options for maintaining the UK's position as an aviation hub which do not involve a third runway at Heathrow.
(See Implementation Update, para. 5.)

Release of public land

Land auctions

In the 2011 Budget, the government confirmed its intention to pilot some sort of land auction model on public sector land (see Legal update, 2011 Budget: property implications: Land auctions). The government has announced that two sites will be ready for market by the end of 2012.
(See Budget Report, para. 2.247 and Implementation Update, para. 51.)

Release of public sector land

The government wishes to speed up the rate at which publicly owned land is sold for housing purposes. It has identified sufficient land to support over 100,000 homes and 25,000 jobs by April 2014 .
The government intends to publish a progress report containing more details before the summer of 2012.
(See Budget Report, para. 2.17.)

Enterprise Zones

The government has announced that it is considering the first Enterprise Zone in Northern Ireland.
In the 2011 Budget, the government announced that up to 21 new generation Enterprise Zones would be established (see Legal update, 2011 Budget: property implications: Enterprise Zones).
24 Enterprise Zones are now going ahead across England (see DCLG: Enterprise Zones). For background information on Enterprise Zones in England and Wales, see Legal updates:
A full list of current zones and maps will be published on the Treasury website shortly.

Rural Growth Networks

As part of its plans to support countryside business, the government has announced that the six pilot Rural Growth Networks will be located in:
  • Devon and Somerset.
  • Cumbria.
  • Swindon and Wiltshire.
  • Northumberland.
  • Durham.
  • Warwickshire.
The £15 million pilot project to boost the rural economy, announced in the 2011 Autumn Statement, invited applications for rural sites to be considered as one of the six Rural Growth Networks. The six chosen pilot sites will develop and test different models designed to stimulate sustainable economic growth in rural areas.
(See Budget Report, para. 2.258.)

Health and safety

The government has announced that it will scrap or improve 84% of health and safety regulation to reduce barriers to business growth.
During 2012, legislation will be introduced to reform health and safety law from a "strict liability" approach, to allow a company a civil defence if it can demonstrate that it has done everything that would be reasonably practicable and foreseeable to protect employees.
By April 2013, the government wants those bodies responsible for bringing health and safety proceedings (such as the police, Health and Safety Executive and Crown Prosecution Service) to start any action within three years of an incident occurring. This is intended to prevent a company being disadvantaged by having to collect and manage historic records, and to benefit those individuals personally affected by an incident at work.
To streamline the enforcement process, the government will give the Health and Safety Executive authority to direct all local authority health and safety inspection and enforcement activity. A code, based on existing powers, will be introduced in April 2013.
These reforms implement the recommendations in Lord Young's report, Common Sense, Common Safety, published in October 2010. For details, see Practice note, Reforming the UK's health and safety laws.
(See Budget Report, para. 2.238.)

Temporary relaxation of Sunday trading

The government has announced that the restrictions on trading hours, which apply to large shops, will be relaxed during the London 2012 Olympic and Paralympic Games to allow retailers to make the most of trading opportunities.
The Sunday Trading Act 1994 applies to shops in England and Wales with an internal retail floor area exceeding 280 square metres, and prohibits them from opening for a continuous period of more than six hours between 10.00 am and 6.00 pm. These provisions will be suspended for the eight Sundays from 22 July 2012 to 9 September 2012 (inclusive).
No further details of the proposed legislation have yet been released, but although the statutory restrictions on trading will be relaxed, a tenant retailer in a shopping centre will still have to comply with any restrictions on trading hours contained in its lease, and perhaps pay additional charges reserved by a landlord for the provision of "out of hours" access or services.
(See Budget Report, para. 2.242.)

Sources

Further information

For more information on the 2012 Budget, see Legal updates: