With all of the hubbub surrounding the changes to Capital Gains Tax and how that is likely to affect the nation’s numerous landlords, little has been made about another part of the Chancellor’s budget speech which he delivered on Wednesday 16 March 2016. George Osborne announced an extension to the Entrepreneurs’ Relief, something that will see long-term investors in unlisted companies able to enter the fray.
It is hoped that the changes will make it easier for businesses to attract investment into their projects, and the property sector is one of the main areas that the Chancellor hopes will benefit. Property startups with adequate backing could help ease the current housing crisis that is blighting much of the UK, especially the capital.
What are the changes?
The new rules for Entrepreneurs’ Relief mean that, for the first time, external investors can now benefit from the 10 per cent tax rate. This is regardless of the size of the holding that they have and it is also applicable to unlisted trading companies, meaning that the breadth of the relief has been extended considerably.
These external investors will be allowed to enjoy the 10 per cent tax rate on all profits made up to the £10 million mark providing they sell their holdings after being involved with the company for a minimum of three years. The changes are set to come into effect at the start of the new financial year on 6 April 2016.
Under the current rules, external investors were unable to take advantage of the relief unless they were at least five per cent shareholders in the company in question and made directors. Until the changes were announced in the most recent budget, external investors would have been required to pay the full rate of Capital Gains Tax if they could not make their investment through the Enterprise Investment Scheme.
This was limited to companies who dealt in what was considered to be a qualifying trade by the EIS, and only those who meet the criteria could attract money from the scheme. One such industry that did not qualify under the previous rules was property development. However, now it is hoped that the changes will encourage those who develop and sell both residential and commercial property to seek outside investment, thus creating more housing to help meet the seemingly insatiable demand.
More funds mean more housing
Greater funding will undoubtedly lead to more affordable housing across the capital and beyond. Smaller local property developers are likely to be amongst those who take full advantage of the changes, and it is this breed of developer that will be able to make a dent in the housing shortage should they get the investment that they need.
Many analysts are already hailing this shift in policy as good news for the UK’s housing sector, as well as bringing a welcome boost to the Alternative Investments Market (AIM). As this particular market is classified as ‘unlisted’ it will be eligible for investment itself, something that will be seen as a gift at a time when the junior stock market is suffering due to the volatility seen over recent months.
All in all, this is a positive move from the Chancellor. All that remains now is for developers to pick up the reins and start building.
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