On an unusual Budget day, the Office For Budget Responsibility announced, and the Chancellor later confirmed, a number of initiatives that will have a direct impact on the construction and property sectors.
Capital Allowances – New First Year Allowance
In an unexpected move, the Chancellor confirmed that not only would the current Full Expensing regime continue, but a new 40% first year allowance would be available on certain expenditure previously excluded from the Full Expensing regime. This will apply from 1 January 2026.
As a reminder, Full Expensing provides corporation taxpayers with a 100% first year allowance on main pool plant & machinery and a 50% first year allowance on special rate pool plant & machinery. However, these are not available on assets used for leasing, other than background plant & machinery leased with a building, or on second-hand assets.
Whilst limited information is currently available on the proposed changes, it appears that the new 40% allowance will now provide enhanced allowances on these assets and, perhaps more importantly, on all plant & machinery expenditure incurred by unincorporated businesses such as partnerships, trusts and sole traders.
The new 40% first year allowance will be funded by reducing the annual writing down allowance for main rate plant & machinery from 18% to 14%, applicable from April 2026. This means that whilst there is a benefit in the year that expenditure is incurred, this will be gradually offset in following years with the overall amount of relief received after six years being no more than would have been received under the current scheme.
Property Income Tax
From April 2027, income from letting property or land will be taxed using its own set of income tax rates, separate from the main employment and self-employment rates. Property income will still be calculated in the usual way, but instead of being taxed at the standard basic, higher and additional rates, it will be subject to new “property” rates of 22% (basic), 42% (higher) and 47% (additional), with finance cost relief for unincorporated landlords given at the new 22% property basic rate.
Higher Value Council Tax Surcharge
The current Council Tax system was introduced in 1993. It taxes domestic property through eight valuation bands, based on property values in 1991. From April 2028, a new High Value Council Tax Surcharge will apply to owners of residential properties in England valued at £2 million or more in 2026, as an extra annual charge on top of their normal council tax. Properties will be split into four value bands: homes worth £2.0–£2.5 million will pay a £2,500 yearly surcharge; £2.5–£3.5 million properties will pay £3,500; £3.5–£5.0 million properties will pay £5,000; and properties worth over £5 million will pay £7,500, with all these fixed amounts then uprated each year in line with CPI from 2029–30.
Fewer than 1% of properties are expected to be caught and social housing is excluded. There will be consultations on detailed reliefs, exemptions, complex ownership structures and a support scheme for those who may struggle to pay.
Capital Allowances - Electric Vehicle Charging
The Government has extended the 100% first year allowance for electric vehicle charging points. The electric vehicle charging point first year allowance was originally introduced from 23 November 2016 for a three-year period and subsequently extended, with the allowance due to end on 31 March 2026 for corporation tax and 5 April 2026 for income tax purposes.
The 100% first year allowance will now be in place until 31 March 2027 for corporation tax purposes, and 5 April 2027 for income tax purposes.
Similarly, the 100% first year allowance for zero emission cars will also be extended to the same dates.
Although this is of course good news that the scheme has been extended, this is a relatively modest extension, when compared to previous budgets. When considering the overlap of the 100% first year allowance for ‘Full Expensing’ remaining in place during this extended period, the extended EV charging allowance will have minimal impact on applicable capital allowances claims.
When claiming first year allowances it is important that claimants consider any balancing charge which may be applicable when disposing of the asset. Seeking expert advice is essential.
Landfill Tax
Having undertaken consultation regarding Landfill Tax, the Government will not proceed with transitioning to a single rate of tax by 2030 and will now retain the exemption for quarries with disposal permits.
The Government will increase the standard rate of Landfill Tax by RPI from 1st April 2026 and the lower rate will increase by the same amount in cash terms.
These measures have been taken in consideration of the Government’s housebuilding targets to ensure Landfill Tax remains proportionate and that the construction sector has access to a low-cost alternative to landfill.
