BUDGET 2026: JOHN HEALEY CONFIRMS HIS FISCAL PRIORITIES IN A CAUTIOUS BUDGET

Executive summary

John Healey’s first Budget as Chancellor made it clear that reducing debt as a share of GDP is his overriding priority, leaving little room, or appetite, for significant changes to tax incentives. Below, we look at the handful of measures most likely to affect housebuilders, developers and real estate investors, covering both what was announced and what was notably absent.

Land Remediation Relief (LRR)

Firstly, it was disappointing to see no announcement in the Budget regarding the reforms to LRR proposed by HM Treasury (HMT) in their consultation document issued last summer. In particular, there was no mention of the proposal to accelerate the timing of when the relief can be claimed from the date of sale to the date of expenditure, which would have released more working capital into projects at a much earlier date. However, the HMT team leading the consultation has subsequently confirmed in an email to consultees that this was due to concerns over the costs of the proposals and the lack of evidence to demonstrate that the benefits would outweigh the costs.

On a more positive note, the HMT team did also confirm that the LRR regime will continue in its current form, meaning greater certainty for those companies with established processes in place and, for those who might feel that they have not yet fully benefitted from the available relief, it still leaves open the potential for retrospective claims on qualifying costs for up to 4 years after the remediated land was sold (for developers) or 2 years after the costs were incurred (for investors). HMT also confirmed that they will be updating guidance to help companies better understand how the relief is intended to operate.

The one positive change for brownfield developers was the confirmation that sites of less than 1.5 ha will be exempt from having to comply with biodiversity net gain requirements. However, let’s not forget the highly punitive escalation in landfill tax costs, with the lower rate set to rise by the same amount in cash terms as the RPI-adjusted standard rate, with the new rates set to be announced in the Finance Bill.

R&D Expenditure Credits (RDEC)

There were also some changes to the R&D legislation which were presented as administrative measures to remove the burden of making a claim but were actually quite significant for first-time claimants.  These changes are:

• Removal of the Claim Notification Form (CNF): The government will introduce legislation in the Finance Bill to remove the requirement to submit a CNF for R&D claims made on or after 1 April 2027.
• Streamlining the Additional Information Form (AIF): HMRC will simplify and rationalise the information required in the AIF for companies claiming RDEC starting in autumn 2027. The government are inviting ideas to be posted to the R&D policy mailbox (policy@hmrc.gov.uk), using “AIF simplification ideas” as a subject line. These will then be confirmed in good time before the new rules become operative.

Both these measures are welcome, but the significant point here is that the previous requirement to submit a CNF often meant that if you were a first-time claimant or had not made a claim in the last 3 accounting periods, it was not possible to make a retrospective claim even for the most recent period if more than 6 months had passed since the end of that period, even though general time limits allowed 2 years to amend a tax return. The general two-year rule will now apply for any claims submitted after 1 April 2027.

Capital Allowances (CAs)

In a slightly confusing announcement on CAs, it would be fair to say that people might be less certain than they were before on what they are actually entitled to! For clarity, for companies, the first-year full expensing of main pool plant and machinery expenditure remains (which had already been announced last year) but the writing down allowance (WDA) on that expenditure will be reduced from 14% (down from 18% from April 2026) to 12% from 1 April 2027.  The special rate pool rates remain unchanged at the same 50% first year allowance and 6% WDA.  The Budget reference to a first-year allowance being increased from 40% to 50% was for plant and machinery purchased by unincorporated bodies and by leasing companies (other than P&M fixtures in buildings) only, neither of which is able to benefit from full expensing.

Given full expensing can only be claimed on new plant and machinery purchased in the period, the reduction in WDAs will reduce the rate at which main pool allowances are claimed in the following scenarios:

• Main pool balances carried forward from periods ending immediately before 1 April 2027.
• The acquisition of fixtures within existing buildings, normally via a s.198 election.
• Claims made outside the two-year time limit to make a claim on new plant and machinery expenditure under the full expensing provisions.
• If you voluntarily opt to claim the allowances via WDAs, perhaps to smooth the rate at which you receive the relief, a tactic often preferred by REITs, for example.

It was also confirmed that the government will be publishing its summary of responses to the call for evidence on pre-development costs and their eligibility for capital allowances.  This follows the UK Supreme Court decision in the often-cited Gunfleet Sands case, in which the Court unanimously allowed HMRC’s appeal, ruling that pre-construction environmental surveys, feasibility studies, and general development costs are too tangentially connected to qualify as expenditure “on the provision of plant” under section 11 of the Capital Allowances Act 2001. The application of these findings to similar infrastructure projects will be confirmed in new guidance, which will be welcome.

VAT

For housebuilders and social housing providers there was welcome news that VAT zero-rating will apply for all opted land sold to Relevant Housing Associations (RHAs) with effect from 1 April 2027 rather than having to wait until construction of the building has commenced, typically marked by the “Golden Brick” rule. This will not only be administratively less burdensome, but it will also accelerate land receipts for developers without impacting their zero-rating status on their input tax, thereby increasing their return on capital employed (ROCE).  It will also mean the RHAs are able to receive legal title earlier without incurring VAT.

We will need to wait for the detail to understand how the new rules will impact future land transactions provided for under existing development agreements, but there may be an opportunity for those transaction provisions to be reviewed.

In summary, whilst I would say that it was very disappointing not to see the well-argued reforms to land remediation relief taken forward, it is nonetheless positive that it retains the backing of the party who first implemented it back in 2001 and that it will remain in force for the foreseeable future, providing the certainty that has been absent for nearly 2 years.

Author: Ben de Waal