In advance of the Chancellor’s upcoming Budget, we asked each of our sector teams for the things they’d like to see to support the UK businesses. Here follows the wish list for the Property & Construction sector.
Comments provided by Rebecca Wilkinson.
This tax year has already seen the introduction of a new cash basis of accounting for smaller scale landlords and the commencement of the new interest restriction rules, which both result in significant changes to the way landlords calculate their rental profits. Whilst many landlords still hope for a U-turn on the interest restriction rules, which are likely to result in large tax increases, this looks unlikely and the best that property investors can realistically hope for is a respite from further changes, whilst everyone gets to grip with the new regime.
The fact that the new interest restriction rules only apply to individual landlords, coupled with the current low rate of corporation tax has led many buy-to-let investors to transfer their property portfolios to companies over the last year. With rising inflation likely to put pressure on public finances, the Government may seek to raise taxes in some areas and there is fear that this could lead to the introduction of a higher corporation tax rate for investment companies. Such a move would be relatively easy for the Government to introduce, as investment holding companies have been taxed at higher rates in the past. The raising of corporate tax rates for investment companies would be a nasty sting for any landlord that has recently incorporated their buy-to-let business in order to minimise taxes.
Whilst corporate landlords may be an easy target for tax increases, the property rental sector has already been disproportionately targeted by changes to tax legislation in recent years and should now be left in peace to pick up the pieces.
Confidence in the construction sector is reportedly at its lowest level since December 2012 with many businesses claiming a lack of new projects to replace those that are coming to completion. The Government needs to focus on supporting this sector, particularly as new affordable homes are required to ease the housing crisis.
Help could be given to SME developers by scrapping the 3% Stamp Duty Land Tax (“SDLT”) surcharge on purchases of residential plots for redevelopment, especially if the redevelopment increases the number of homes on the site.
The number of house sales has fallen over the last year and this is largely blamed on the punitive rates of Stamp Duty Land Tax (“SDLT”), which are deterring people from moving up the housing ladder. Lack of movement at the upper end of the housing market is having a knock on effect down the chain and is putting pressure on affordable housing, meaning it is increasingly difficult for first time buyers to afford houses.
With a high proportion of young people voting for Labour during the June 2017 election, the Conservatives will be keen to win favour with this age group and there are rumours this may lead to SDLT breaks for first time buyers. Whilst this will undoubtedly be popular with non-home owners, in the long run it will only serve to increase demand for affordable housing which is already in short supply.
The somewhat radical move of switching SDLT onto sellers rather than buyers has also been suggested as a possible solution to the housing crisis, but again this would only increase demand from first time buyers, which will push up prices. Pushing SDLT onto the seller may also act as a disincentive to those looking to downsize, as they would be taxed on the more expensive home they are selling.
Ideally the Government should be trying to encourage downsizing and therefore SDLT breaks for elderly people who downsize may be a more effective solution.
The only real solution to the housing crisis is an increase in the number of new homes being built, to improve supply, however new houses are not going to be built overnight. In the meantime, reducing SDLT rates at the top end of the market may help to get the property ladder moving.
Get more input on the Autumn Budget 2017 implications for the Property & Construction sector by speaking to our sector team.
Find out more about the Menzies Property & Construction advisory services.