Pre Budget Report - December 2009
29th December 2009
The Chancellor made his Pre-Budget report to the House of Commons on 9 December 2009 and, as anticipated, announced relatively few property measures to help businesses in increasingly difficult economic times. These included the following:
Research and Development Tax Relief
The government has introduced a relaxation of the Research and Development rules for small and medium sized companies. Finance Bill 2010 will remove the current condition stating that the company incurring qualifying expenditure and thus making a relevant claim must also own the associated resulting intellectual property. This applies to all expenditure incurred in accounting periods ending on or after 9 December 2009.
Anti-Avoidance Legislation
Latent Capital Allowances
In July 2009 preventative measures were introduced to restrict the transfer of excess unused capital allowances from one company to another (‘latent’ capital allowances). In practical terms this would apply where the main purpose of a transaction is to acquire an interest in the unused allowances from a vendor company whose capital allowances value exceeds its balance sheet value.
The initial measures restricted the way the allowances were used to relieve profits and effectively were not available to be used by the acquiring company. Further legislation is being introduced to add to these measures as of 9 December including:
- extending the target transactions to transfers involving unincorporated shareholders;
- establishing rules to prevent the manipulation of tax written down values; and
- treating excess postponed allowances with regard to ships the same as other allowances
Draft legislation has been published on all the above in an accompanying document to be introduced in Finance Bill 2010
Leasing
New draft legislation has been published that specifically aims to counter two forms of tax avoidance involving lessors and the leasing of plant and machinery. It will ensure that:
- lessors are unable to generate tax losses from arrangements that generate tax relief in excess of the value of taxable income; and
- businesses will be prevented from converting a timing advantage to a permanent tax advantage when they sell a right to income from a lease of plant and machinery and then cease to be within the charge to tax, which would have otherwise been clawed back, had they remained with within the tax regime.
Furnished Holiday Lettings
It has been confirmed, as was expected that the specific advantageous provisions for Furnished Holiday Lettings (FHL) will be removed in Finance Bill 2010 for periods after April 2010.
Currently, all those letting FHL attract the beneficial treatment of a trading company rather than that of all other property businesses. This includes advantageous loss provisions, greater capital allowances, certain capital gains reliefs and particular UK earnings treatments for pension purposes.
As of April 2010 FHL businesses will be subject to the same rules as all other property businesses, and specifically, capital allowances on new expenditure on ‘dwellings houses’ (which is how most Furnished Holiday Lets will then be treated) will be denied.
Green Allowances: Electric Vans
Subject to the state aid position, legislation will be introduced with effect for expenditure incurred after April 2010, to provide a 100% first year allowance for businesses who incur expenditure on new electric vans.
Other Measures
Further to last year’s consultation and responses thereto, the government announced that it is holding further talks with all relevant parties with relation to the modernisation of Landfill Tax regulation. This is with a view to what materials constitute a taxable disposal for tax purposes. Further announcements are expected in the New Year.