Tackling tax: the property and construction Budget wish list

Mark Webb
13 March 2015

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As the Chancellor of the Exchequer prepares to present his last Budget of this Parliament on Wednesday, Smith & Williamson’s Mark Webb outlines his predictions wishes for the property and construction sector. 

Firstly, the Chancellor must ensure that HMRC is adequately resourced so it can run an efficient tax system. This would benefit taxpayers - be they individuals, businesses, charities or others - as well as government.

"With business rates one of the largest ‘tax’ expenses for SMEs, it is surely time for a proper review of the burden these place on growing businesses."

As an example, HMRC’s front line tax teams are currently under-funded. It has insufficient staff with the necessary skills to provide clearances for businesses and taxpayers trying to navigate the complexities of the system and get their tax affairs right. 

If HMRC were suitably funded, the authorities would be more able to ensure taxpayers pay the correct amount of tax.

Looking specifically at property, the Budget wish list starts with the Introduction of relief for long term capital gains. Providing such relief for assets held over the long term will encourage ownership of assets such as shares and enterprises no matter what the underlying asset(s) is.

Rent–a-room relief should also be raised with an increase the threshold for this relief to cover the amount a householder generally receives from renting out a room. 

The £4,250 limit has not changed since it was introduced in 1992. Raising it to reflect the increases in rents over the last 20 plus years would take many people, often those on low incomes, out of tax or reduce the need to submit tax returns. 

Such a move could be particularly helpful in London and the South East where accommodation is in short supply.

"Let’s not forget that certainty helps businesses to plan and develop, which can only be good news for the economy."

On business tax a commitment should be made to keep capital allowances and annual investment allowances at the current rate to help businesses plan investment and prevent the pitfalls of a continually changing allowance.

Let’s not forget that certainty helps businesses to plan and develop, which can only be good news for the economy.

Entrepreneurs’ relief should also be left alone. While it is true that the amounts of tax forgone through Entrepreneurs’ Relief have risen in the last Parliament, this is a sign of its success and shows how it can incentivise business people to set up, develop enterprises and pass on businesses at an earlier stage. 

With record numbers of people engaged in self-employment, the relief’s active support of the entrepreneurial economy is surely appropriate.

Business rates for SMEs should also be reduced.  With business rates one of the largest ‘tax’ expenses for SMEs, it is surely time for a proper review of the burden these place on growing businesses.

Also national insurance allowance for SMEs should be extended to broaden the lower rates of NIC, currently applying to under 21s, to young graduates as a means to moderate youth unemployment.  Incentivise and ensure that the construction industry grasps this and upskills current and new workers.  

Finally, the Chancellor should permit the general anti-avoidance rule (GAAR) to settle down. This needs to be tested before bringing in further changes. 

In practice it appears to be working in terms of providing a healthy deterrent to abusive avoidance. If further changes are to be considered, the GAAR should also apply to benefit of taxpayers.  

As a result, taxpayers who are not trying to avoid tax could use it to protect themselves from falling foul of double taxation and other bear traps.

Mark Webb is chairman of the property and construction group at Smith & Williamson, the accountancy, tax and investment management specialist.