MHA Real Estate Matters – Issue 9

MHA Real Estate Matters, Issue 9, is available now. We have worked with MHA to provide a national outlook on the issues facing the construction and real estate sectors.

Issue 9 contains articles on the following:

  • Land Transfer Tax replacing Stamp Duty Land Tax in Wales
  • Zero Rate VAT within construction projects
  • A summary of UK construction sector corporate finance deals, alternative funding and an update on the residential house price index

Key Stats

Some key stats are outlined in the publication:

MHA Real Estate Matters – Issue 9

To view the full publication, please click on the image below:

Property Land Tax Rates – Different rules for different locations

Following the devolution of certain taxes to government of Scotland and Wales, businesses need to be aware that certain property land tax rates are different in Scotland and Wales to England, notably what used to be called Stamp Duty.

Property Land Tax in England and Northern Ireland is now known as Stamp Duty Land Tax (SDLT). In Wales it is Land Transaction Tax (LTT) and in Scotland it is Land and Buildings Transactions Tax (LBTT). Although broadly similar, the three different Land Taxes have different rates in each location (see tables below).

With all three taxes, HMRC must receive a filed return within 30 days of the ‘effective’ date of the transaction, even if no tax is due. This is usually the date the transfer is completed. The payment deadline is the same as the return filing deadline.

However, the deadline for filing a return in England (Stamp Duty Land Tax) is changing from April 2019 from 30 to 15 days.

England and Northern Ireland – SDLT

Scotland – LBTT

There are specific circumstances in which Scotland requires a submitted tax return every three years for leases signed after April 2015, including:

  • Every three years from the effective date of the lease,
  • On assignation; and
  • On termination.

Wales – LTT

In summary, businesses purchasing new property need to take into consideration the different tax rates across jurisdictions and filing requirements. This is to ensure that the tax costs and payment dates do not come as an unwelcome surprise.

Contact us

To discuss further, please contact our Tax specialists on 0191 285 0321.

MHA’s Real Estate Matters Issue 8 is now available

MHA Real Estate Matters Issue 8 is now available. It is part of MHA’s Construction & Real Estate series.

Find out how the 2018 Spring Statement announcement will affect the sector. It includes the following:

  • Financial support that will be provided to tackle supply and skills shortages
  • Affordable housebuilding plans
  • Transport announcements

Real Estate Matters Issue 8

Meet Tait Walker’s Property and Construction team.

Blue Monday for UK Construction as Carillion enters liquidation

In recent years, the term Black Friday has gathered some following. It was imported from the USA to represent the first day after thanksgiving and a day when traditionally the best deals are available from retailers. Many people are familiar with this term and it has helped UK consumers kick start the Christmas shopping.

Blue Monday is probably less well known in the public’s imagination (other than by fans of 1980s New Order) but is meant to be the glummest day of the year. The term Blue Monday has been defined as the third Monday in January when reality starts to bite for many people, when the excesses of Christmas seem like a long time ago and when the New Year’s resolutions feel too hard and the weather too depressing.

Sadly, today 15 January 2018, is a very depressing day for those in the Construction Services industry as it is the day when the Government has said “enough is enough” and stopped guaranteeing monies owed to the banks by Carillion.

This will lead to an uncertain future for the thousands of workers at Carillion and also for the many hundreds of subcontractor businesses in the construction services supply chain that may be owed money. It is uncertain how much of these debts to many SMEs will be paid and also when.

This will put immense pressure on many small businesses who may not be able to afford the working capital requirements to continue to meet their obligations to staff and suppliers.

For many it couldn’t come at a worse time as subcontractors may have been owed money for work done in November and December.

If any businesses have concerns about working capital they should contact their existing funders and accountants to identify their short term funding requirements, and how they can be satisfied.

Planning your business to be resilient for large financial shocks is often easier said than done – though it does show that all businesses should be careful about over reliance on single contracts/customer, should carefully forecast and project working capital needs and should obtain credit insurance where available.

If there is a ray of sunshine, it will be that many of Carillions contracts with the Government or the public sector will still need to be completed. Some workers somewhere will still need to fulfil these essential services and infrastructure projects. At the time of writing, other competitors of Carillion have seen their share prices rise.

There may also be some longer term benefits for the industry if the likely political fall out highlights issues within the UK construction supply chain and eventually new legislation gives greater protection to those near the bottom of the supply chain who are last to get paid.

We will no doubt learn more over the coming weeks and months but it is likely that the outcome of the liquidation, the political fall out and the real story behind the collapse of Carillion will not be fully known for a long time.

ICAEW Quarterly Confidence survey September 2017

Our Corporate Finance Partner, Steve Plaskitt, attended the latest presentation of the ICAEW Business Confidence Monitor survey for Q3 of 2017. It was at Judges, Yarm and took place on Tuesday 19th September 2017. Steve shares the findings in this blog post…

The Event

Keith Proudfoot of the ICAEW and Mauricio Armellini from the Bank of England were presenting. They were great at making sense of complicated economic data and graphs.

The idea is that the graphs of business confidence closely follow GDP. There is a useful comparison of how confident the North East community is compared to the rest of the UK. For example, how the construction and property sectors fare nationally. A negative result shows that FDs expect performance to be worse than a year ago and a positive result shows businesses are confident of growth.

Findings

In short, we are all less confident now than three months ago – though it is not nearly as bad as one year ago!

Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017
North East-13.0-0.2-2.4+5.6-9.9
UK-10.2-9.8-8.7+6.7-8.0
Construction-19.4-8.0-5.5+3.3-5.0
Property-26.5-14.4-22.5+2.6-12.6

Whilst the property sector is below the UK in confidence, the construction service sector is relatively confident. This reflects a less negative view on forecast housebuilding and infrastructure spend.

The accountants/FDs of businesses were preparing for wage costs, input costs and inflation rising faster than selling prices.

Compared to the UK, more North East FDs were confident in increasing their exports. However, they were less confident about increasing their investment in capital equipment and Research & Development.

Economic and political uncertainty was eroding business confidence. Spare capacity and uncertainties were thought to be supressing the growth of investment in equipment, products and people.

Conclusion

Whilst it seems that there is more bad news around, we should not forget the benefits that exporters are currently seeing. We can take comfort in knowing that the Brexit negotiation process will soon become clear and that the data shows we are more confident than this time last year!

For further advice or assistance, please contact Steve Plaskitt on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk

North East Construction Sector returns to confidence

Our Corporate Finance Partner, Steve Plaskitt, attended the latest ICAEW UK Business Confidence Monitor (BCM) and shares his thoughts in our new blog post…

I attended the 23 June announcement by Keith Proudfoot of the ICAEW Business Confidence Monitor for Q2 2017. This is the rolling survey of finance directors and is a great barometer of the health of UK business as it is meant to closely anticipate future GDP.

The main message was a return to positive though weak confidence – measured as an increase from -8.7 to 6.7 for the UK after three negative quarters. In order to quantify business confidence the survey asks FDs questions about their confidence for the next 12 months compared to the prior 12 months. ‘Confident’ is given a score of 50 and ‘very confident’ a score of 100. Negative scores represent less confident positions and all the answers are collated and averaged.

This reflects a gradual upward trend rather than a sudden upswing. FDs in the North East saw increased confidence (a rise from -2.4 to 5.6) and the construction sector saw a similar return to confidence for the first time in a year (-5.5 to 3.3). The property sector saw a huge upswing in confidence from (-22.5 to 2.6).

When asked about spare capacity, 35% of North East construction FDs believed they had spare capacity compared to a whopping 70% of manufacturers.

The main issues for business owners included input price rises (up 2% compared to 2012), competition (37% of respondents), customer demand (33%) and lack of direct skills (20%).

Also in attendance was the Bank of England’s Mauricio Armellini who gave a brief talk on The Economic outlook. He explained that Brexit negotiations are the biggest influence on the MPV forecasts (as yet we don’t know the process and the destination), and assuming a smooth Brexit transition, (i.e. avoiding a “cliff edge”) then inflation is forecast to be 2.9% and economic growth 1.9% at the end of the year.

He also showed that the markets expect 0.5% interest rate in mid 2019, based on international forward rates.

Finally, some good local news for the North East – employment was up 26,011 in the last quarter to April 2017.

For further information and advice, please contact Steve Plaskitt.

New £10 million property fund launched in North East

A £10 million property fund aimed at supporting smaller scale North East construction and property development projects will provide an important boost for the construction industry.

The idea for the fund was conceived by FW Capital, the investment company based in the North of England, who will now manage the North East Property Fund. The fund is backed by Santander and the North East LEP and is held by NPF 2016 Ltd, a special purpose vehicle set up by directors Michael Smith and Geoff Hodgson for this purpose.

The North East Property Fund has been created in response to strong demand from small and medium-sized (SME) construction and property development  companies who are unable to access mainstream finance from traditional sources and is hoped it will help kick start development in smaller scale property ventures across the North East.

“Santander is proud to support this new venture which will have a tangible impact on the local North East economy, including significant job creation,” said Stephen Carmichael, Relationship Director, Santander Corporate & Commercial..

This is a brand new fund concept in the North East combining both public and private money to benefit SME property developers in the region. We were pleased when FW Capital approached us and the North East LEP about the fund idea. It’s a bold and compelling initiative that is confronting head-on the urgent need to deliver more new-build property.”

The fund will provide loans from £250,000 to £1 million for non-speculative residential and commercial developments in Tyne & Wear, Northumberland and County Durham. Typical repayment terms are between nine and 18 months.

Like other regions in the UK, smaller construction and property development companies have struggled to access finance from traditional lenders, leading to a new-build deficit in residential and commercial properties. This has in turn led to housing shortages in the area.

In terms of the North East itself, an estimated 6,440 homes were built last year vs an annual target of 9,000; only 1,420 of the 3,800 target for affordable homes were built in the region; this shortfall is compounding the legacy deficit year on year.

David Land, the North East LEP Investment Panel Chair said: “The North East Property Fund will tackle a pressing need identified in the region’s Strategic Economic Plan to build more homes which in turn will help drive economic growth.

“Our ambition is for the North East to return to pre-recession housing rates of more than 6,000 new houses a year and this new fund provides smaller construction firms with the confidence to pursue projects to build vital new housing.

“A similar fund in Wales has had a proven impact and demand to access this type of investment in our region is strong.”

The fund is based on the highly successful Wales Property Development Fund that has been operating for almost four years within the Finance Wales Group.  FW Capital is part of the Finance Wales Group and they currently manage a number of funds in the North of England.

“At FW Capital we’re able to combine our existing local knowledge with shared expertise regarding property fund management in the wider Finance Wales Group,” explained Fund Manager Joanne Whitfield. “We’ve supported some excellent companies in the North East over the last seven years with a range of growth finance solutions from short-term loans to mezzanine and equity finance.

“We’re looking to expand our offering so that developers here in the North East will benefit from similar success we’ve seen in Wales with the Wales Property Development Fund. We pride ourselves on being a trusted finance partner of small and medium businesses across the North of England and we are delighted to be able to offer this new product to support smaller developers to grow.

The fund will operate on a commercial basis and by reinvesting returns into future projects it has the potential to provide over £30 million of finance into smaller developers over the next five years.

It  aims to finance the build of over 300 new homes and finance the development of around 4000 square metres of commercial space. This is forecast to contribute in excess of £25m to the regional economy, creating or safeguarding over 600 local jobs.

Square One Law acted for FW Capital on setting up the Fund, Ward Hadaway acted for Santander and DWF acted for the North East LEP. PwC and UNW provided financial due diligence services to Santander and the North East LEP.

The team at Square One Law has been involved in the creation of over 25 funds . Mark Lazenby, Partner and Head of Finance, said: “The creation of a property fund for the North East is great news. This is the first time a fund like this has been set up in England and it will build on the great work FW Capital has done with the Wales Property Development Fund as well as assisting the North East LEP to deliver its Strategic Economic Plan.

“The use of innovative funding structures like this to help recycle public monies and create public/private partnerships will be a good way to help sustain economic growth in the North East.”

Businesses wishing to apply for investment from the fund should contact Tony Cullen at FW Capital on 0191 269 6966, email Tony at tony.cullen@fwcapital.co.uk or visit www.fwcapital.co.uk for more information.

ICAEW Report shows Q1 Construction Confidence Growth

Corporate Finance Partner, Steve Plaskitt, attended the Q1 2017 regional Business Confidence Monitor (BCM) event on 16th March 2017 hosted by Keith Proudfoot and shares his experience below…

Each quarter the BCM asks a number of simple questions of business owners, such as ‘are you more confident for the next 12 months than you were last year?’ and ‘are you expecting turnover growth in the next 12 months?’

The findings are then aggregated and have been a very good predictor of quarterly GDP as well as a source of other data split by region and by sector.  Currently the BCM is predicting a GDP of 0.1% for Q1 2017. More details can be found at www.icaew.com/bcm.

The data is analysed so that in simple terms a positive score shows optimism and a negative score shows pessimism.

The good news is that the construction sector is forecast to be slightly less pessimistic than the UK as a whole – and that the confidence is strengthening faster as shown by the following table.

Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Change
UK11.40.8(10.2)(9.8)(8.7)+ 1.1
Construction20.87.4(19.4)(8.0)(5.5)+ 2.5

Perhaps this positive outlook is due to the belief that the Government is to invest in infrastructure and housing in order to help the economy.  The table does show a strong recovery from the pessimism shown in the Q3 2016 data in the immediate aftermath of the Brexit vote.

When analysed by region, again the North East appears to be more confident (or as the score is negative, perhaps that should be less pessimistic!) than the UK as a whole.

Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Change
UK11.40.8(10.2)(9.8)(8.7)+ 1.1
North East3.56.5(13.0)(0.2)(2.4)– 2.2
Yorkshire and Humber3.05.51.0(2.0)(16.9)– 14.9

Its great to see North East businesses faring better than others in the UK though not so good to see a decline in the Q1 score. Finally we should perhaps spare a thought for those in Yorkshire and Humberside and lets hope their sudden decline in optimism is only temporary and not an accurate prediction of the future.

For further information or advice, please contact Steve Plaskitt.

Infrastructure Growth key to North East Strategic Economic Plan

Corporate Finance Partner, Steve Plaskitt, attended the launch of the North East Strategic Economic Plan at The Hilton Hotel in Gateshead on 10th March 2017.

The launch, by the North East LEP, aimed to bring a cohesive strategy to the growth of jobs and investment in the North East local authorities area of Northumberland, Durham, Newcastle/Gateshead, Tyneside and Sunderland.

The aim was to achieve 100,000 more jobs in the region and the great news for the construction industry was that Andrew Hodgson (Chair of the north East LEP) announced that it would be “infrastructure that would grow skills.”

Two of the six ways to deliver the growth of the Strategic Economic Plan are as follows:

  1. Economic Assets and Infrastructure: including a commitment to  “supply the right land and develop our critical infrastructure and sites to support the growth of our industrial strength.”  The International Advanced Manufacturing Park planned for Sunderland is a great example of this with over 5,000 jobs expected to be created.
  2. Connectivity: “developing and implementing the regional transport plan” which includes improving road links such as:
    1. A69: Making a continuous road flow around Hexham and Corbridge, instead of the roundabouts that currently slow traffic; and
    2. A1: Road widening between Newcastle and Berwick upon Tweed – which is thought to be particularly more likely now that the Chair of Transport for the North, John Cridland, now lives at Berwick.

All of this is great news for the North East construction industry and the continued development of infrastructure will provide building contracts through to 2024.

For further advice, please contact Steve Plaskitt.