In its response to the government’s consultation into implementing a
capital gains tax on non-residents, the BPF recognises the government’s
desire for a fair and equal tax regime but also expresses its concern
that the proposals will deter valuable overseas investment into the
housing market, at a time when the housing shortage is particularly
acute.
The last couple of years have seen significant investment
in the private rented sector from overseas investors, who have helped
to deliver schemes on a large scale. The BPF fears that as the build to
rent sector is only starting to gain momentum it is particularly
important to maintain interest in the sector, especially given the
relatively low yields it offers in comparison to other investments,
including commercial property.
The consultation paper states
that overseas REITs, pension funds and widely-owned investment funds
will be exempt from the tax. While welcoming these concessions, the BPF
does not think that they adequately reflect the diversity of investment
structures used by widely-owned institutional investors and is concerned
that a number of overseas institutions who use joint venture structures
to invest in UK real estate will still be caught up in the new rules.
The
BPF’s response proposes that the exemption should be extended to any
‘widely held entity’, to ensure that overseas institutional investment
is not unnecessarily deterred.
Ion Fletcher, Director of Policy (Finance), British Property Federation, said:
“Virtually
all of the investment by global capital in the UK’s built environment
has taken place on the basis that no tax arises on capital gains arising
from disposal of UK assets. This relief for non-residents goes back to
the introduction of capital gains tax in the 1960s and may have been
introduced initially to attract overseas capital. It is an important
consideration when carrying out viability assessments, and the UK real
estate market could become significantly less attractive if this
exemption is taken away.
“The BPF strongly believes that the
build to rent and private rented sectors will play an important part in
solving the housing crisis and the government, with its PRS Taskforce
and Build to Rent fund, has so far appeared to agree. Unfortunately,
introducing these proposals when the housing crisis is so acute does
seem to be completely at odds with these initiatives, and we urge the
Treasury to ensure that it considers their impact carefully.”
