Tax Change Will Boost UK Property Derivatives Market

by Robert Lee, Tax-News.com, London

23 September 2004

Changes to the tax treatment of property derivatives will allow property-market speculators to offset losses against tax and help to create a £10 billion market within two years, The Times newspaper has reported.

Previously, investors paid capital gains tax on profits but were not able to offset losses against tax, and it is believed that this has been an obstacle to the market’s growth.

However, according to Phil Nickin, tax partner at Deloitte, the new tax rules are set to revolutionise the market.

“Property derivatives will make an illiquid asset liquid. The market for them will be huge once people realise how cheap they are, how flexible they are and how easy they are to transact,” Mr Nicklin was quoted by the Times as explaining.

Nicklin, who contributed to the drafting of the new rules, believes that the changes will fuel growth in the market from a few hundred million pounds to between £10 billion and £20 billion.

The derivatives will allow firms to reduce exposure to sections of the property market, such as shopping malls and offices, through the use of swap contracts with parties seeking more exposure to the market.

Investors can also hedge their bets by trading Investment Property Databank return indices, which track the performance of more than £100 billion in commercial property assets.

Recommended