Budget 2020: Implications for the Housing sector

Budget 2020: Implications for the Housing sector

KPMG assess the implications of the Spring Budget 2020 for the Housing sector.


Partner, Infrastructure Government and Healthcare

KPMG in the UK


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Budget 2020 - Red Suitcase


In a Budget that was inevitably focused on measures to protect the economy against the spread of COVID-19, Housing Associations and Local Authorities will be pleased that the Chancellor made bold financial commitments in support of the Housing sector, as part of a wider commitment to Infrastructure.

At a headline level, the Government pledged a £10.9 billion increase in housing investment to support the construction of 1,000,000 homes over 5 years.  This target is due to rise to an average of 300,000 homes a year by the mid-2020s. This extra funding should support the construction of new homes and of increasing housing supply.

To this end, the Budget announced the following specific measures in support of the Housing sector:

Funding for Affordable Homes Programme: The Government pledged an additional £9.5 billion for the Affordable Homes Programme. In total, the programme will allocate £12.2 billion of grant funding from 2021-22 to build affordable homes across England. The Government expect this should bring in a further £38 billion in public and private investment. 

Single Housing Infrastructure Fund: The Government will launch, as part of the Comprehensive Spending Review in July, a new long-term Single Housing Infrastructure Fund to unlock new homes in areas of high demand across the country by funding the provision of strategic infrastructure and assembling land for development. 

Regional focus: The Budget pledges allocations from the Housing Infrastructure Fund totalling £1.1bn for nine different areas including Manchester, South Sunderland and South Lancaster. The Budget also announces additional housing investments in York Central, Harlow and North Warwickshire totalling £328 million. 

Brownfield Housing Fund: The Government launched a new £400 million brownfield fund for councils and Mayoral Combined Authorities with the aim of creating more homes by bringing more brownfield land into development.

Investment by Local Authorities: To stimulate investment by Local Authorities on housing, the Government is:

  • Cutting the interest rates for investment in social housing by 1 percentage point, and making an extra £1.15 billion of discounted loans available for local infrastructure projects through the Public Works Loan Board (PWLB) to support specific Local Authority infrastructure projects for England, Scotland and Wales. 
  • Reducing the Housing Revenue Account lending rate for discounted PWLB lending to support social housing to 80 basis points above gilts for local authorities in England, Scotland and Wales.

Consequences for Local Authorities: Where Local Planning Authorities fail to meet their local housing need, there will be firm consequences, including a stricter approach taken to the release of land for development and greater government intervention. 

Homelessness: The Budget pledges £643 million for accommodation and support services to support the homeless. This is broken down as: £237 million for accommodation for up to 6,000 rough sleepers, a further £144 million for associated support services, and £262 million for substance misuse treatment services.  Money raised from a 2 percent non-UK resident Stamp Duty Land Tax surcharge will be used to help fund policies to reduce rough sleeping in England. 

Corporation Tax

Many Housing Associations benefit from the availability of charitable tax exemptions. Nevertheless, the following corporation tax announcements may still be of interest in the sector, particularly for Associations with non-charitable subsidiaries.

Corporation Tax rate unchanged: The headline level corporation tax rate will remain unchanged at 19 percent.

Capital Allowances - Structures and Buildings Allowance (SBA) rate:  The annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings will increase from 2 percent to 3 percent from April 2020.

Stamp Duty Land Tax and Property Tax

Non-UK resident Stamp Duty Land Tax (SDLT) surcharge: The Government will proceed with introducing a stamp duty land tax (‘SDLT’) surcharge on foreign buyers of residential property in England and Northern Ireland. The current proposal is that non-resident individuals, corporates and we assume other entities will, from 1 April 2021, pay an SDLT surcharge of 2 percent on top of the ordinary SDLT rates that would otherwise apply (which could include the 3 percent additional homes surcharge).

The measure is aimed at controlling house price inflation and supporting UK residents to get on the housing ladder by deterring non-residents from buying up UK housing stock as an investment.  However, it is expected to raise some revenue which is to be applied to fund policies to help reduce rough sleeping in England.  

Stamp duty / SDRT – market value charge for connected company transfers: The Budget confirmed that draft legislation which introduces a market value rule for transfers of unlisted shares to companies connected with the transferor is to be retained unchanged within the Finance Bill 2020.

The provision is, like the listed shares provision, limited to transfers to connected companies only, but unlike the listed shares provision the rule will only apply where the actual consideration for the transfer includes an issue of shares by the transferee company.  

Existing stamp duty reliefs such as group relief and share for share exchange relief still apply as the draft provision only determines the chargeable consideration for the transaction.

Housing co-operatives - Annual Tax on Enveloped Dwellings (ATED) and Stamp Duty Land Tax (SDLT): The Government will introduce a relief for qualifying housing co-operatives from the ATED (effective April 2021, with a refund available for 2020-2021), and relief from the 15 percent flat rate of SDLT on purchases of dwellings over £500,000 (effective Autumn 2020). 


The Budget did not include any new significant VAT measures aimed specifically at the housing sector.

However, the government did announce that it will invest an additional £1 billion to remove unsafe cladding from residential buildings above 18 metres to ensure people feel safe in their homes. This should hopefully accelerate the undertaking of these works, which HMRC have previously agreed can in certain circumstances qualify for the zero rate of VAT, thus reducing the cost further of making these buildings safe.  

Otherwise, there were three further noteworthy announcements which may have implications for the sector:

With effect from 1 December 2020 new legislation will be introduced to apply VAT at the zero rate to e-publications, including e-magazines and academic e-journals. Going forward this should reduce the cost to housing association of subscribing to e-publications. 

It was reconfirmed that the domestic reverse charge for construction services will come into force from October 2020, having previously been deferred from October 2019.  Whilst this should only directly affect a relatively small number of housing association transactions (as zero rated construction services, certain supplies within corporate groups and supplies to end users will be unaffected), housing associations will need to ensure that they review supply chains and apply the new reverse charge rules as applicable. 

Following the recent consultation by HMRC on the simplification of the VAT rules on partial exemption and the capital goods scheme, it was announced that the government will continue to engage with stakeholders and will publish a response to the consultations in due course.

Employment Tax

With only a short time in his new role, Chancellor Rishi Sunak focused his first Budget on alleviating the problems caused by the recent spread of the coronavirus and boosting expenditure on infrastructure projects across the UK.  

Accordingly, the Budget was a relatively subdued affair from an employment tax perspective, with a number of changes already announced such as the increase in the Primary Class 1 NIC Threshold for employees to £9,500, and the roll out of the Off-Payroll Working rules to the private sector.

From an employer’s perspective, the main points are as follows:

Income tax relief for pension contributions – Individuals will continue to receive income tax relief at their marginal rates, and from 6 April relief for those with ‘threshold income’ of less than £200,000 (currently £110,000) and ‘adjusted income’ of less than £240,000 (currently £150,000) will not be subject to taper.

Other pension changes include the expected increase in the lifetime allowance (i.e. the maximum amount of UK tax-relieved pension savings someone can accrue over their lifetime before additional charges apply) to £1,073,100 in line with the consumer price index.

Off-Payroll Working reforms – Implementation of the regime for the Private sector from 6 April 2020 was confirmed. This includes new requirements that will impact on Public Sector bodies already operating the scheme. If you have not already considered the changes then we recommend you do so.

As recent tribunal decisions demonstrate, determining whether an engagement amounts to ‘deemed employment’ can be complex, and organisations should take particular care to ensure they are prepared to undertake these assessments as they finalise their systems and processes for the new regime.

Support with the coronavirus (COVID-19) outbreak – A package of measures was announced to support individuals and employers affected by the outbreak, including confirmation that the Government will temporarily extend SSP to cover individuals who are unable to work because they have been advised to self-isolate, as well as people caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate.  

Benefits in kind and expenses – A number of measures were announced, including:

  • As announced last summer, most company car tax rates will be reduced by 2 percent in 2020/21 for cars first registered on or after 6 April.  The rates will then increase by 1 percent in 2021/22 and a further 1 percent in 2022/23, before being frozen until 2024/25;
  • From 6 April 2020, the fuel benefit charges and the van benefit charge will increase in line with the consumer price index. However, a nil rate of tax will apply to zero-emission vans within the van benefit charge from April 2021;
  • In a welcome move, from April 2020 medical treatment, such as cognitive behavioural therapy, when provided to an employee as part of an employer’s welfare counselling will be brought within the scope of non-taxable counselling services; and

From 6 April, the maximum flat rate income tax deduction available to employees to cover additional household expenses will increase from £4 per week to £6 per week, for individuals with homeworking arrangements.

National Insurance Contributions (NIC) – The previously trailed increase to the employee’s NIC threshold from £8,632 to £9,500 was confirmed, along with some other measures including:

  • The upper earnings limit (above which employee’s NIC falls from 12 percent to 2 percent) will remain frozen at £50,000 on an annualised basis.
  • The Employment Allowance, which applies to employers whose employer Class 1 NIC liability was below £100,000 in the previous tax year, will increase to £4,000 from 6 April.

Other consultations and relevant measures announced include:

Construction Industry Scheme (CIS)

The Government will introduce legislation in Finance Bill 2020 aimed at preventing non-compliant business from claiming tax refunds.  

Broadly, these measures will allow HMRC to reduce or deny the CIS credit claimed on employer returns where the sub-contractor cannot evidence their deductions and does not correct their return when asked. It will also simplify the rules covering deemed contractors, clarify the rules on allowable deductions for expenditure on materials, and expand the scope of the penalty for supplying false information when registering for CIS.  

Connected to this, the Government will also publish a consultation on how to promote supply chain due diligence, including ideas for tackling fraud in supply chains.  It remains to be seen whether this focuses just on the construction industry or has broader application in line with HMRC’s wider focus on business supply chains in areas such as labour supply and VAT.

Neonatal pay and leave, and unpaid caring

Employees whose newborn children spend an extended time in neonatal care will have a new entitlement to up to 12 weeks’ paid leave.

Additionally, the Government will consult on a new in-work entitlement for employees with unpaid caring responsibilities.

National Living Wage (NLW) and National Minimum Wage (NMW)

The previously announced increases to the NLW and NMW rates were confirmed.

From 1 April 2020, the NLW for those aged 25 or over will increase from £8.21 to £8.72, and the hourly NMW rates will increase from:

  • £7.70 to £8.20 for 21 – 24 year olds;
  • £6.15 to £6.45 for 18 – 20 year olds;
  • £4.35 to £4.55 for those under 18; and
  • £3.90 to £4.15 for apprentices aged under 19 or in the first year of their apprenticeship.

The accommodation offset will increase from the current £7.55 per day (or £52.85 per week to £8.20 per day (or £57.40 per week) from 1 April.

The NLW will extend to those aged 23 and over from April 2021.

The Chancellor reaffirmed Sajid Javid’s commitment to increase the NLW to two-thirds of median earnings and extend it to all employees 21 and over by April 2024. 

The income tax personal allowance, thresholds and rates

As previously announced, the standard income tax personal allowance will remain at £12,500. 

The higher-rate threshold will remain at £50,000.

Whilst the personal allowance is available to all qualifying UK taxpayers, Scottish taxpayers are subject to tax on non-savings and non-dividend income based on rates and bands set by the Scottish Parliament (for the Scottish rates and bands for 2020/21, which have now been confirmed, see our coverage of the Scottish Draft Budget 2020/21).

Similarly, Welsh taxpayers are subject to tax on non-savings and non-dividend income at rates set by the National Assembly for Wales. In 2020/21, these will be the same for as for other UK taxpayers outside Scotland.

If you would like to discuss any of these points please do not hesitate to contact your usual KPMG contact, or one of the following:

Corporate Tax: Sandra Cox (0161 246 4280) or Kathryn Mallett (+44 129 3652743)

VAT: Dan Smith (+44 207 3114379) or Gareth Blower (+44 129 3652768)

Employment tax: Paul Moreels (0191 401 3703)

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