Chancellor Rachel Reeves has now delivered Labour’s first budget since 2010 with the aim of “restoring economic stability” taking a tax centric approach. We have considered the budget announcements and the impact of this on owners and landlords of commercial real estate.
Capital Gains Tax (CGT)
Capital Gains Tax is paid by property owners and landlords on the profit they make when selling a property. The concern and uncertainty around CGT rates and reliefs created a flurry of deal activity aimed at completing asset disposals in advance of the Autumn Budget, locking in the current CGT rates, reliefs, and allowances. Whilst the adaptations made to CGT rates and reliefs, alongside other taxes have not been as great as some feared there is no delay in the impact of the new rates which take place immediately. For those that were hoping for delay in the effective date to allow for a short-term window to bring forward disposals to save tax will be disappointed, this opportunity has now passed them by.
The CGT lower rate is set to increase from 10% to 18% and higher rate from 20% to 24%.
Business Rates Relief
Business rates can be a significant cost for landlords and owners holding an asset, especially where properties may be held unoccupied for longer than three months. The Chancellor has confirmed that the existing 40% relief on business rates for retail, hospitality and leisure industries will continue until 2025/2026 up to a cap of £110,000 per business, with the aim of reducing the pressure of maintaining profitable margins. However, outside of these industry sectors landlords may need to absorb these costs, certainly for vacant premises or otherwise to stay competitive in a market where tenants are increasingly focused on affordability and flexibility.
Beyond the Budget
The budget will most certainly impact commercial property owners through higher taxes and increased operating costs. If the sentiment in the Chancellors statement is taken on face value and we can expect an“…end to short-termism…” approach from this new government and where taxes are increasing on the disposals of business premises, taking a longer-term view will be beneficial.
Retail, hospitality, and leisure industries will hopefully continue to benefit from the business rates announcements, irrespective businesses in other sectors will have to look to alternative approaches to maintain profitable margins.
The government remains focused on the energy sector as a key driver of economic growth. Prioritising ESG goals and flexible office spaces may as a result continue to evolve. Landlords who have the ability to future proof their portfolios to stay ahead of these trends, developing sustainable workplaces, improving ESG credentials and enhancements to their tenant experience can only support the post-budgetary landscape maintaining elevated occupancy rates.
How can Goughs help
The ability to focus on adaptability with market foresight in an evolving landscape is essential. Whether you’re a seasoned investor, a business revaluating your existing portfolio or a tenant business navigating the complexities of your premises, Goughs Commercial Property Team can provide unparalleled expertise and a collaborative approach to ensure your transactions are smooth, secure, and strategically advantageous.