George Osborne’s 2016 budget was quite wide-ranging with a few more measures that affect the property industry than most people were expecting:

Macro Background

At the “big picture level” the headline grabber was a reduction of the expected rate of growth of GDP by around 25bps a year over the next five years. This was more than a reaction to the Chancellor’s “dangerous cocktail” of risks facing the world economy but also involved a substantial downgrade to the assumed prospects for future UK productivity growth.

This downgrade to growth prospects affects tax receipts and much of the rest of the budget was about how the fiscal gap can be filled either through boosting productivity (infrastructure, education, personal, Corporation and Capital Gains tax cuts, and devolved powers) or through a raft of tax raising measures.

On the positive side for real estate, there appears to have been an implicit assumption that interest rates are unlikely to rise until 2018 in the calculations of interest payments on government debt.

There was also a dig at the “leave the EU camp” with a warning from the OBR that the uncertainty following a no vote would lead to “greater volatility in financial and other asset markets”.

Individually, these measures do have some bearing on real estate:

The Positives for Real EstateBusiness Rates

Retailers in particular, and small businesses in general, will be pleased with the more generous exemptions on business rates, even if they didn’t get some of the more radical measures they were asking for. Changing from RPI to CPI indexation from 2020 will take the sting out of the future tax burden as RPI is expected to grow by 1% ahead of CPI although they will have to wait until 2020 for this to be implemented. The move to a 3-year valuation cycle will also be welcome and there will be calls for the Scottish Government to implement similar measures north of the border.


There will be a clampdown on overseas online retailers selling into the UK but avoiding UK VAT. This will also be a benefit to UK retailers and will help to level the playing field in the competition between on-line and store-based retailers.


There were a lot of positive words on infrastructure albeit combined with not much new money. Crossrail 2, HS3 (Leeds to Manchester), M62 widening and a feasibility study on a road tunnel under the Peak District linking Manchester to Sheffield were all mentioned. All are welcome from a regional economic development point of view but it may still be decades before these projects get underway and even longer until they are completed.


There are new mayoral devolution deals for a number of areas (though not yet for Leeds, Southampton and Portsmouth which have yet to agree on combined authorities), and there are new deals for the Shire areas that have agreed to have mayors. City Deals plans for Edinburgh and Swansea will bring these cities in line with Glasgow, Aberdeen and Cardiff.

London will also get more control of business rates revenue - brought forward to April 2017. This is a significant measure as it allows London to keep the fiscal benefits of economic growth and property development, which encourages growth friendly policies at the local level. We may well see this become the blueprint for similar plans extended to other parts of the UK. 

… and then the mostly Negatives.Stamp Duty and Land Tax (Commercial)

Under the disguise of removing distortions in the same way as last year’s residential SDLT reforms and the LBTT system in Scotland, today’s changes to commercial SDLT have pushed up the top rate from 4% to 5%, increasing transaction costs of all properties costing more than £1m and have increased the expected tax take by over £500m (over 10%) by 2017-18. Theory says that a tax increase is born partly by the vendor and partly by the buyer with the share partly depending on market conditions. With today’s cooling of the market in the lead up to the referendum, the odds are that the bulk of the cost will be pushed on to the vendor.

There is also a new 2% rate for very large leasehold transactions (where the net present value is above £5 million). This is only likely to affect very large central London transactions. Other new leases will be unaffected.

Anti-Tax Evasion Measures

Aimed at limiting tax evasion and avoidance by offshore property developers - expected to raise £640m by 2019-20. Companies located in Guernsey, the Isle of Man and Jersey will also be treated as being in the UK for all Corporation and Capital Gains tax purposes.

Interest relief

A limit on interest payments that can be offset against profits for Corporation Tax purposes is to be limited to 30%. It is not clear how much this will affect property companies or, indeed, if it is aimed at property companies at all, but many companies are highly geared and have substantial interest costs. Our understanding is that the new measures will not affect REITs as they are largely exempt from Corporation Tax but even that is yet to be confirmed.

And last, but not least, the negatives for residential property:The additional 3% stamp duty levy to buy-to-let will  now also apply to larger investors. The effect of this tax has the potential to deter much needed institutional investment in an embryonic build to rent sector. In turn, it may also further hinder the current fundamental issue of an under supply of housing.There appear to be no exceptions for developers but could be that companies that develop properties and do not sell them will not incur the tax. This would be a major mitigating factor. We await further clarification.


Some positives on tax rates and business rates, infrastructure and devolution but what looks like a tax grab on property to help close the fiscal gap.To access CBRE's full range of Research, please visit The Global Research Gateway