The UK property industry wants the government to delay implementing measures to restrict the tax deductibility of debt, in response to uncertainty since the vote for Brexit six weeks ago.
The measures were initially recommended by the Organisation for Economic Cooperation and Development (OECD) as part of its initiative to tackle Base Erosion and Profit Shifting (BEPS) and are due to take effect in April 2017. However, the British Property Federation (BPF) says that the government should hold off until 2018.
Restricting the tax deductibility of debt will increase the cost of debt finance, says the BPF. It has outlined concerns that the proposals will particularly harm investment in capital intensive industries like real estate and infrastructure that make extensive use of debt funding. This could have significant, knock-on implications for jobs and growth – particularly in the UK construction sector.
In its response to a Treasury consultation on the proposals, the BPF warns that the government should not introduce new rules unless it is clear that they will not harm investment in capital intensive industries. It suggests that all genuine third party debt should be tax deductible as it poses a low risk of tax avoidance and that as an absolute minimum there should be safeguards for debt which represents very low tax avoidance risk, such as debt secured against real estate and infrastructure in the UK.
It explains while it is wholly supportive of the government’s plans to tackle tax avoidance, the current proposals will “exacerbate uncertainty at a time when the economy can least afford it”.
“We have been concerned about the impact of OECD’s recommendations on real estate and infrastructure for a while and by the UK’s hasty introduction of the measures,” said Ion Fletcher, director of policy (finance), at the BPF.
“Our concerns have become more acute since the result of the Referendum – now is not the time to be adding to the uncertainty faced by businesses. Investment in commercial real estate is an important cornerstone of the UK economy, and implementing these measures without properly considering their implications for investment could be storing up problems for the future.
“Investment in infrastructure will be similarly affected. Prioritising investment in infrastructure is something that we and a number of other bodies have called for since the Referendum result in order to maintain investor confidence in the UK. Bringing in measures that could have an adverse effect on jobs and growth seems counter-productive at this point in time.”
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