The Chancellor of the Exchequer Rishi Sunak delivered the Autumn Budget for 2021 on 27 October 2021 and draft legislation was published on 4 November 2021 in the Finance Bill. The majority of the Budget announcement were focused on recovering the economy from COVID-19’s impact and preparing the UK marketplace to be competitive in a post Brexit world, with limited changes to the real estate sector.

We have selected below the items which we think are of most interest to Mayer Brown’s real estate clients.

Residential Property Developer Tax : 4% rate

The tax is set to apply from 1 April 2022 on profits above £25m. This means that following the increase in the corporation tax rate to 25% from 1 April 2023, developers subject to the tax will pay 29% of corporation tax on profits in scope. The tax will apply to companies within the charge to corporation tax which undertake residential property development (“RPD”) activities. RPD activities include anything that is done by a residential developer on or in connection with land in the UK for the purposes of the development of residential property.

The draft legislation contains a non-exhaustive list of RPD activities which includes: dealing in residential property, applying for planning permission, construction, and marketing or managing the land etc. The crux of the tax is that it looks to capture anyone who has, or had, an interest in the land, and would for example exclude the profits of third party construction companies contracting to develop residential property in cases where they have not held an interest in the land.

Further, the draft legislation also contains a list of carve- outs regarding its definition of “residential property” excluding hotels and student accommodation. RPD tax will apply to profits arising from the development of residential property only when the land/property is held as trading stock by the developer or a related entity. Luckily, property investors (including those using a build-to-rent model) are  excluded.

Real Estate Investment Trusts: amendments

In a continual attempt to increase the attractiveness of REITs to overseas investment the Government has made a series of changes to REITs requirements in order to alleviate certain constraints and administrative burdens.

The main changes include:

  • Removing the requirement for REIT shares to be admitted to trading on a recognised stock exchange in cases where institutional investors hold at least 70% of the ordinary share capital in the REIT.
  • Amending the definition of an ‘overseas equivalent’ of a UK REIT so that the overseas entity itself, rather than the overseas regime to which it is subject, needs to meet the equivalence test.
  • Removing the ‘holders of excessive rights’ charge where property income distributions (PIDs) are paid to investors entitled to gross payment.
  • Amending the rules requiring that at least 75% of a REIT’s profits and assets relate to property rental business (the ‘balance of business test’) to disregard non-rental profits arising because a REIT has to comply with certain planning obligations, and to ensure the items currently specified as excluded from the profits part of the test are disregarded in all parts of the test.
  • Introducing a new simplified balance of business test so that, if group accounts for a period show that property rental business profits and assets comprise at least 80% of group totals, a REIT will not have to prepare the additional statements which would be required to meet the full test.

Changes to the deadlines for Capital Gains Tax payments on property disposals

The deadline for reporting and payment of Capital Gains Tax on the sale of UK residential properties by individuals is to be extended from 30 days to 60 days. The same increase in deadlines will also apply to the equivalent obligations for non-UK residents disposing of UK property.  The changes apply to disposals on or after 27 October 2021.

Corporate Re-domiciliation: Open consultation

This consultation is to consider views on various aspects of the introduction of a UK re-domiciliation regime. The regime would make it possible for companies to re-domicile and therefore relocate to the UK.

For the real estate world this re-domiciliation regime is unlikely to be needed as overseas companies are already within the charge to corporation tax on income & gains. There also may be restrictions on the ability to re-domicile depending on in which jurisdiction the company was incorporated. If a company has benefited from rebasing for non- resident capital gains purposes, this may remain even if a company does re-domicile to the UK.

Abolition of cross-border group relief

Overseas companies are now no longer able to surrender losses as group relief to UK companies for corporation tax purposes. Non-UK companies with a UK branch or permanent establishment must also now first use UK losses against UK profits before they can be surrendered overseas.

Super-deduction: Annual Investment Allowance extension for background plant and machinery

This measure will temporarily increase the limit of the AIA from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023.

Other news

  • Business Rates: 50% relief for Retail, Hospitality and Leisure sectors in 2022-23, £110,000 cash cap.
  • Business Rates: COVID-19 additional relief fund.
  • Brownfield First: allocation of £1.8bn for building around 160,000 new homes on brownfield sites in England.
  • Affordable Homes Programme: £11.5 billion for the Affordable Homes Programme (20% more than the previous programme).
  • Digital Planning: £65 million of investment to support the digital transformation of the residential housing planning system.
  • Transport and Green Infrastructure: England’s cities and regions will receive £6.9bn to spend on train, tram, bus and cycle projects enable more housing.
  • Annual tax on enveloped dwellings (ATED): annual chargeable amounts for ATED will rise by 3.1% from 1 April 2022. This is in line with the September 2021 consumer prices index (CPI).


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For any other legal questions related to UK real estate, please get in touch with your usual Mayer Brown contact or one of the blog editors.