UK Property Industry Laments Lack Of Action On Tax

by Robert Lee, Tax-News.com, London

02 December 2008

A vital opportunity was missed by the United Kingdom government in the pre-budget report (PBR) to inject much-needed confidence into the country's ailing property market with radical tax measures, tax experts and the property industry are arguing.

While the government says that its decision to temporarily cut VAT by 2.5% will provide the fillip required to get consumers spending again, critics of the move believe that significantly more could have been achieved in terms of restoring economic confidence by cutting or temporarily abolishing property taxes - and at considerably less cost than the GBP12bn price tag attached to the VAT cut.

"New tax incentives would have helped alleviate the problems currently facing house builders. The Chancellor had a great opportunity to boost the residential property market by introducing tax breaks in the PBR, but unfortunately chose not to," said Marios Gregori, Real Estate Tax Director at accountants and advisors PKF.

PKF had called on Chancellor Alistair Darling to kickstart the economy and housing market by raising the nil-rate threshold of Stamp Duty Land Tax (SDLT) to properties worth up to GBP1m, or re-introducing Mortgage Interest Relief at Source for first time buyers for the first five years.

“The SDLT statistics for 2006-07 and 2007-08 show the Government received GBP6.5bn and GBP6.6bn respectively on residential transactions. The figures for 2008-09 are likely to be much lower, so introducing a temporary extension of the nil rate band will not cost the Chancellor a huge amount more than doing nothing," Gregori said.

In early September, the government introduced a one-year holiday on stamp duty, raising the minimum threshold by GBP50,000 to GBP175,000. But this has failed to have any discernable effect on the market.

The Chancellor has also come in for some harsh criticism regarding the controversial tax on empty commercial properties. While the pre-budget report has provided relief for owners of empty properties with a rateable value of less than GBP15,000, the British Property Federation (BPF) has dismissed the move as "empty spin."

"Small firms across the country are outraged over government plans to plough on with taxing empty shops, offices and warehouses, offering an exemption that will help virtually no one," the BPF stated. "The Chancellor claimed that 70% of properties would be helped by an empty property rates (EPR) holiday for properties with an estimated value of less than GBP250,000. But these figures include cash machines, advertising hoardings and other things no one would regard as ‘properties.’"

Empty rate relief on properties within the threshold will generate a one-off business rates cash saving of up to approximately GBP7,000 for individual properties that fall into the GBP1 to GBP14,999 rateable value range. The new rules will come into effect from April 1, 2009 to March 31, 2010.

According to Simon Tivey, Head of Rating at PricewaterhouseCoopers LLP, this temporary move may assist the small property investor or a small business with some empty buildings, but will do nothing to relieve the property tax burden on speculative developers, pension funds or owners of medium to large empty property in general.

"A supply of refurbished and new property has always been a major driver of the wider economy and the general lack of rate relief for empty property continues to suppress development activity. An across the board substantial reduction from the 100% level at which empty rates are charged would have been more welcome," he observed.

Recommended