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With the Budget just days away, we asked David Melhuish, Director of the Scottish Property Federation what the real estate industry is watching out for.
So how important is the UK Budget for the Scottish property industry?
In days past the UK Budget was undoubtedly the political highlight of the year – with political commentators and those of us advising the private sector trying desperately to get the inside track of what would be coming out of the Chancellor’s battered briefcase.
Arguably this position has dramatically changed for industries like property where nearly all policy and legislation is now devolved to Holyrood. Indeed, with Income Tax also now devolved (largely), the UK budget feels to be much less critical an event for Scotland than it once was.
Yet Westminster’s budget is of huge importance to Scotland’s property sector with measures like VAT, corporation tax and capital gains tax, capital allowances and tax incentives for regeneration are all key issues. One example are the Business Premises Renovation Allowances, due to be closed this April but which contributed to several Scottish regeneration projects. In fact on VAT the impending departure from the EU will arguably make Westminster more important than it currently is.
Any increased spending south of the border will also result in increases to the Scottish Budget as a result of the Barnett formula. So whether that’s money for the NHS, housing or building new large infrastructure you can bet that Finance Secretary Derek Mackay will be keeping a close on proceedings in Westminster. What the Scottish Government then does with any additional budget is of course a matter for Holyrood.
Even with decreasing relevance for Scotland, the Chancellor’s statement will still have an impact here both directly and indirectly, as many of the issues being discussed are the same north and south of the border.
Take business rates for example – a hot political topic throughout the UK. We’ve seen some movement from the Scottish Government to mitigate the impact of the worst rises on hospitality and north east based offices in Scotland and undoubtedly the industry down south will be looking for and anticipating some positive movement too. Whether the Chancellor decides to go further than Mr Mackay’s concessions will be keenly watched by businesses although this again supports the view that the rates system north and south of the border is in urgent need of reform and not just isolated tweaks to deal with the outcome of the recent revaluation.
There will also be the recognition across the industry that any political statement, whether it’s delivered by Philip Hammond or Derek Mackay, which creates variances in policy between the nations will bring with it challenges, as with marginal returns then even an apparently small policy or tax change can have major impacts.
Businesses involved in real estate investment south of the border will also be keeping an eye on any further changes to SDLT rates. SDLT in Scotland was of course replaced by Land and Buildings Transaction Tax in April 2015. The top rate of commercial SDLT will be of particular interest as will any move by the Chancellor to align the 3% slab tax on second homes with Scotland’s relief from large scale PRS transactions.
Westminster’s UK Budget may no longer be totally dominant on taxation for the property sector, but its ability to support or hinder the real estate industry in Scotland cannot be ignored.
Director, Scottish Property Federation