HM Treasury’s consultation on its plans to increase tax for non-residents on property gains closed last week (16th February). Chris Denning, tax partner at MHA MacIntyre Hudson questions whether the wider economic implications have been thought through given the potential for the proposals to impact investment in the UK economy:
“The Treasury’s plans to tax commercial property gains made by non-resident investors might initially seem a sensible proposal, levelling the fiscal playing field between UK and foreign investors. Unfortunately the Treasury does not appear to be considering the wider economic impacts of the proposals which seem to be aimed at large multinationals but, like other recently enacted anti avoidance legislation, will have much broader impact.
“There are large numbers of smaller non-resident investors ploughing wealth acquired overseas into, for example, run down hotels and smaller sites, stimulating the economy and providing jobs for UK residents. A mini economy revolves around every property transaction.
“There is no indication that Philip Hammond and the Treasury have thought beyond the meagre fiscal returns likely to accrue from this measure, a reasonable estimate of which, £160 million per annum by 2022, constitutes only around 0.00002% of total UK revenue in 2017.
“Like it or not the UK fiscal regime has been favorable for non-resident investors and this has been a contributory factor in many investment decisions. The UK’s current stance of not exercising full taxation rights is part of being fiscally competitive in the global market place.
“This policy proposal comes on the back of other, arguably penal, Treasury measures in the residential property sector, such as eye watering levels of Stamp Duty Land Tax and restrictions on interest deductibility. These have slowed down sectors of the property market to a standstill, particularly in London and the South East, to the extent that developers are mothballing sites and retailers such as Multiyork have gone bust.
“The government’s target of 300,000 new houses per annum will be hard to achieve against this backdrop so the Treasury would be well advised to consider that a strong and vibrant property sector will ultimately provide more revenue than one where shortsighted tax-raising schemes have choked off activity and investment.”