BPF: delay tax deductibility measures or risk stalling UK growth

5 Aug 2016

Policy area: Tax & Finance

The property industry has urged government to defer the implementation of measures to restrict the tax deductibility of debt to 2018 in the wake of post-referendum uncertainty. 

The measures were initially recommended by the OECD as part of its initiative to tackle Base Erosion and Profit Shifting (BEPS) and are due to take effect in April 2017. 

Restricting the tax deductibility of debt will increase the cost of debt finance and the British Property Federation (BPF) has outlined concerns the proposals will particularly harm investment in capital intensive industries like real estate and infrastructure that make extensive use of debt funding. This could have significant, knock-on implications for jobs and growth – particularly in the construction sector.

In its response to a Treasury consultation on the proposals, the BPF has warned that the government should not introduce new rules unless it is clear that they will not harm investment in capital intensive industries. It suggests that all genuine third party debt should be tax deductible as it poses a low risk of tax avoidance and that as an absolute minimum there should be safeguards for debt which represents very low tax avoidance risk, such as debt secured against real estate and infrastructure in the UK.

It explains while it is wholly supportive of the government’s plans to tackle tax avoidance, the current proposals will “exacerbate uncertainty at a time when the economy can least afford it”.

Ion Fletcher, director of policy (finance), at the British Property Federation, said: “We have been concerned about the impact of OECD’s recommendations on real estate and infrastructure for a while and by the UK’s hasty introduction of the measures. Our concerns have become more acute since the result of the referendum – now is not the time to be adding to the uncertainty faced by businesses. Investment in commercial real estate is an important cornerstone of the UK economy, and implementing these measures without properly considering their implications for investment could be storing up problems for the future. 

“Investment in infrastructure will be similarly affected. Prioritising investment in infrastructure is something that we and a number of other bodies have called for since the Referendum result in order to maintain investor confidence in the UK. Bringing in measures that could have an adverse effect on jobs and growth seems counter-productive at this point in time.”