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Autumn Budget 2018: Implications for the Housing sector

Autumn Budget implications for the Housing sector

KPMG assess the implications of the Autumn Budget 2018 for the Housing sector.


Partner, Infrastructure Government and Healthcare

KPMG in the UK


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The Chancellor made the following announcements in the Autumn Budget with the intention of generating increased investment in the housing sector:

  • Providing £653 million to 2021-22 for strategic partnerships with nine housing associations to deliver over 13,000 homes.
  • A new five-year strategic business plan for Homes England.
  • The Housing Revenue Account cap that controls local authority borrowing for house building will be abolished from 29 October 2018 in England, enabling councils to increase house building to around 10,000 homes per year. 
  • The Housing Infrastructure Fund will increase by £500 million to a total £5.5 billion.
  • The Government confirms that it will introduce a simpler system of developer contributions that provides more certainty for developers and local authorities, while enabling local areas to capture a greater share of uplift in land values for infrastructure and affordable housing. The reforms include simplifying the process for setting a higher zonal Community Infrastructure Levy in areas of high land value uplift, and removing all restrictions on Section 106 pooling towards a single piece of infrastructure.
  • From April 2021, a new Help to Buy Equity Loan scheme will run for 2 years before closing in March 2023. The new scheme will be available for first-time buyers only, and for houses with a market value up to new regional property price caps. 
  • £291 million from the Housing Infrastructure Fund to unlock 18,000 new homes in East London through improvements to the Docklands Light Railway.

Alongside the Budget, the findings of the Letwin review into accelerating housing delivery was published.  This robust review will be commented on by Government in the Spring and we expect findings to be taken up. Key points included:

  • Planning changes to encourage greater diversity of housing on large sites above 1500 units;
  • Greater potential for public private partnerships in master-planning and then selling serviced plots;
  • Broadened planning gain infrastructure contributions to limit value uplift on planning consent to 10x pre-planning value
  • A recognition that availability of bricklayers was a critical constraint on growth

If implemented the Letwin review steps will improve delivery rate and the diversity of tenure and end use of accommodation on larger sites should favour those such as Housing Associations with the ability to operate across many models.  

Below KPMG have summarised the key pensions and tax announcements contained within the Budget. If you would like to discuss any of these points please do not hesitate to contact me or your usual KPMG contact.


In terms of pension’s issues, the Budget was, on the face of it, a quiet one for the pensions industry. However, for organisations participating in public service pension schemes or seeking pension fund finance it is of more relevance.

For a number of years Government has been seeking to get more UK pension fund investment into UK infrastructure. This Budget includes proposals to improve access to finance for the UK’s infrastructure projects, including encouraging Defined Contribution schemes to include them in their investment strategy. For housing associations, pension funds are a possible source of finance and so this change may increase the opportunities available to them. Today’s low yield environment means that schemes’ DC investment strategies need to work harder to generate the returns required and so this presents an opportunity for pension scheme members too. The next step is an FCA consultation by the end of 2018.

The possibility of a change in pension’s tax relief was well trailed, but this didn’t come through. Given that around 75% of the savings would have come from extending the Annual Allowance to more public servants, many of who work for the NHS, it may have been decided that this would have had too many unintended consequences.  However, this is a change waiting to happen and in the meantime the Annual and Lifetime allowances continue to impact more members of public service pension schemes.

As expected, the lifetime allowance for pension savings will increase in line with CPI for 2019-2020, rising to £1,055,000. The band of savings income that is subject to the 0% starting rate will be kept at its current level of £5,000 for 2019-20.

Finally, other more minor mentions for pensions include: 

Pensions dashboards – some additional funding and a consultation later this year on detailed design. It will be a challenge to include public service pension schemes in this exercise and this is something to be monitored

Cold callingthis consultation response confirms that the Government will proceed with regulations and guidance quickly

DC charge cap – the Government to consult in 2019 on the function of the charge cap to ensure it does not unduly restrict use of performance fees

Self-employed – there will be Government paper this Winter on its approach to boosting pensions saving

Corporation Tax

Many housing associations benefit from the availability of charitable tax exemptions. Nevertheless, the following corporation tax changes may still be of interest in the sector, particularly for associations with non-charitable subsidiaries (and there’s a slight tweak to some charitable reliefs too).

Capital allowances

The announced changes include the following:

  • A temporary increase in the Annual Investment Allowance to £1 million, from £250,000, for expenditure on qualifying plant and machinery in the period from 1 January 2019 to 31 December 2020;
  • A reduction to 6%, from 8%, of the special rate allowance (for integral features), from April 2019; and
  • The end of Enhanced Capital Allowances (100% first year allowances on energy efficient plant and equipment) from April 2020.

Corporate capital loss restriction

Where non-charitable entities have significant capital losses, the proposed restriction from April 2020 of the offset of such losses to 50% of annual capital gains (to bring them in line with the treatment of income losses) may be an important consideration. The measure will include an allowance that allows companies unrestricted use of up to £5m capital or income losses each year, meaning that the majority of companies will be financially unaffected.

Changes to specific charity tax measures

While it is not considered that these changes will have a significant impact on the housing sector, the Budget announcement confirmed the following:

  • An increase in the small trading/miscellaneous income level from £50,000 to £80,000 (for charities with total turnover in excess of £200,000);
  • A relaxation of certain administrative requirements in relation to the Retail Gift Aid scheme; and 
  • An increase in the individual donation limit for the purposes of the Gift Aid Small Donations Scheme from £20 to £30.

Stamp Duty Land Tax

First-time buyer’s relief

First-time buyer’s relief will be extended to include qualifying shared ownership property purchases, whether or not the purchaser elects to pay SDLT on the market value of the property. Details are as follows:

  • The remainder of the initial share will be chargeable at 5% on amounts over £300,000.
  • No SDLT will be chargeable on the lease. 
  • Relief is not available on any further shares purchased.
  • The relief will not apply to purchases of properties valued at over £500,000. 

This change will apply to relevant transactions with an effective date on or after 29 October 2018, and will also be backdated to 22 November 2017 so that those eligible who have not previously claimed first-time buyer’s relief will be able to amend their return to claim a refund.


The Budget does not include any new significant measures affecting the application of VAT in the housing sector.  The most noteworthy VAT content for the sector was a further update to the reverse charge for the construction sector, which will be introduced with effect from 1 October 2019 but should only affect a relatively small number of housing association transactions (zero rated construction services and certain supplies within corporate groups and to the final consumers being unaffected).

Regardless, VAT continues to evolve, with noteworthy developments in the following three areas:

  • Making Tax Digital - Making Tax Digital for VAT is now imminent, with introduction dates of April 2019 for ‘simple taxpayers’ and October 2019 for more ‘complex taxpayers’ like VAT groups.  Our work with clients shows that many have plans for addressing the requirement to interact with HMRC digitally (primarily through a bridging software solution) but that current links between the systems that capture transactional data and within the VAT return process, and to a lesser extent the record-keeping of housing associations are not yet compliant with the Making Tax Digital requirements.
  • Treatment of service charges by parties other than the landlord - The VAT treatment of service charges by parties other than the landlord have recently been addressed by HMRC. HMRC had become aware that taxpayers have been incorrectly treating service charges as exempt in scenarios where they are not the landlord, as a result of taxpayers misapplying a concession.  Such misapplication appears more common in the wider property sector. However, where a party other than the landlord charges a service charge then the VAT treatment should be reviewed.
  • Temporary Staff - The Adecco litigation, which involved the taxpayer challenging the extent to which VAT should be applied to charges for temporary staff, has now ended at the Court of Appeal with the taxpayer not pursuing a further appeal.  Consequently, with the taxpayer’s loss, VAT remains due on most supplies of temporary staff.  However, procurement arrangements do exist for engaging temporary staff more VAT efficiently.

Employment Tax

Off-payroll working in the private sector 

As expected, the Chancellor announced that the public sector reforms will be extended to the private sector although this will not take effect until April 2020. 

The rules in 2017 covered public bodies as defined by the Freedom of Information Act and therefore excluded most housing associations.  This will change from April 2020 as all businesses excluding small businesses will be covered (broadly where two out of the following three conditions are met: turnover not more than £10.2 million; balance sheet of not more than £5.1 million; and not more than 50 employees).

In line with the public sector rules, these changes will see responsibility for determining whether an engagement falls within the ‘IR35’ regime moving from the worker’s Personal Service Company (PSC) to the end user.  Where an employment relationship is deemed to exist, the end user of the services would be responsible for operating PAYE/NIC on payments made to those PSCs if it pays them directly.  

National Insurance Contributions (NIC)

 Employer’s NIC will apply to termination payments to the extent they exceed the £30,000 threshold from April 2020, rather than from April 2019 as was originally announced, and the Employment Allowance (£3,000 per year offset for employer’s NIC) will be targeted at smaller employers from April 2020.

Legislation will be introduced to impose the previously announced Class 1A (employer only) NIC charge on termination payments made after 6 April 2020 to the extent the £30,000 threshold is exceeded.  

The NIC Employment Allowance will be restricted to employers with a total employer’s NIC liability of less than £100,000 in the previous tax year from April 2020.

National Living Wage and National Minimum Wage update 

Following the recommendations of the independent Low Pay Commission, the National Living Wage will increase from £7.83 to £8.21 from April 2019.  In addition:

  • The rate for 21-24 year olds will increase from £7.38 to £7.70 per hour;
  • The rate for 18-20 year olds will increase from £5.90 to £6.15 per hour;
  • The rate for 16-17 year olds will increase from £4.20 to £4.35 per hour; and
  • The apprentice rate (for apprentices aged under 19 or in the first year of their apprenticeship) will increase from £3.70 to £3.90 per hour.

Personal Allowance & Higher-Rate Threshold

The Government has brought forward its manifesto pledge to raise the income tax Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by the end of this Parliament.  These increases will now take effect from April 2019. 

Employment status and the Taylor Review

There was no announcement on the Government’s consultation on employment status that followed the Taylor Review.

If you would like to discuss this further please contact:

Corporate Tax: Sandra Cox (0161 246 4280) or Peter Chapman (0121 335 2782)

VAT: Dan Smith (020 7311 4379) or John Rippon (0151 473 5197)

Employment tax: Caroline Laffey (0191 401 3849)

Pensions: Steve Simkins (0113 254 2975)

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