Tax policy: No change is better than a bad change

11 Jul 2017

Policy area: Tax & Finance

Originally published in the BPF Annual Review 2016-17.

With over 60 changes to the tax rules impacting real estate over the last six years, wouldn’t it be nice if the negotiation philosophy ‘no deal is better than a bad deal’ could be applied to tax policy creation? This year has seen thousands of pages of new legislation and guidance on BEPS alone. It’s no surprise that our messaging to government increasingly focuses on the need for certainty and a longer term, holistic approach to the tax system, avoiding gimmicky, knee-jerk policy making.

What’s happened this year?


After two years of lobbying, hundreds of pages of consultation responses and countless meetings with industry and government, the “Base Erosion and Profit Shifting” (BEPS) corporate interest restriction legislation will be effective from 1 April 2017. The big win for our industry is the recognition that property rented to a third party will qualify for the “Public Benefit Infrastructure Exemption” (PBIE) – which will provide greater certainty that third party interest costs will receive tax relief. Some of the other PBIE criteria are still quite restrictive, and we will continue to engage with government on this issue.


While BEPS has received most of the limelight, the restriction of corporation tax loss relief is another big change for real estate businesses – which will have a detrimental impact on cash flow and significantly increase the compliance burden.

Non-Resident Landlords

Largely because of the changes to interest and loss rules, government has consulted on bringing corporate Non-Resident Landlords (NRLs) within corporation tax, to ensure there is a level playing field between UK and non-UK corporate landlords. With 28% of the UK’s commercial real estate owned by overseas investors, it is important that government implements these changes sensitively.

Substantial Shareholding Exemption (SSE)

We welcomed the extension of the SSE, a capital gains tax exemption, which should make the UK a more attractive fund domicile location for all asset classes. We will continue to push the new government for REITs to be treated as a qualifying investor under these rules.

What’s next?

Globalisation, devolution and technology

BEPS may have just scratched the surface of the kind of fundamental tax changes authorities will need to make to keep up with businesses constantly responding to globalisation and technological change. It will be interesting to see how these changes are balanced with greater devolution of tax raising powers in the UK.

The “clicks vs bricks” debate will continue to gather pace – not least because government will want to make sure that it’s getting a “fair” slice of the pie from the success of online retail and other changes to consumer behaviour. Whether the business rates system is the most appropriate way to achieve this is up for debate.


The transparency agenda will continue to gather momentum. UK businesses have already started to comply with the Persons of Significant Control rules, and progress will continue on the new register for overseas owners of property in the UK.

More change is inevitable

It makes sense that the tax system should evolve to keep up with changing business and consumer behaviour. However, real estate investment thrives on certainty – how can you commit to large long-term investments if there’s a danger that the rules of the game will change tomorrow? The government must find a balance between change and stability; future policy change should be considered and well thought through – after all, no change is better than a bad change.