Real estate sector at risk from government reforms

RSM is warning that the proposed changes to the tax deductibility of corporate interest, due for inclusion in the Finance Bill 2017, could disproportionately impact the real estate sector and lead to significant additional tax and administrative costs for some businesses.

In its response to the government consultation, which closes today (4 August), the audit, tax and consulting firm raises concerns about the potential impact of the proposals on business sectors that are typically highly geared such as housing. It also warns that the proposed timing of the introduction of the new rules could affect the UK’s competitiveness, particularly in view of the uncertainties caused by the EU referendum result. 

While the firm recognises that the government has taken note of the lobbying from professionals and from those directly in the real estate sector, it takes the view that the proposed safeguards in place to minimise the impact on smaller businesses are still insufficient, and that an additional exemption for companies and groups below a particular size may be appropriate.

Commenting on the proposed reforms, Howard Freedman, RSM’s head of real estate and construction said: 

‘These reforms are part of an OECD initiative to tackle base erosion and profit shifting by multinational corporations. While we support the overall aims of the policy, we are concerned that these proposals may have unintended consequences – particularly on highly geared businesses in the real estate sector. 

‘The current proposals won’t just apply to multinationals – they could affect a much wider group of UK companies who could be faced with significant additional tax and administrative costs and who are not the target of the OECD’s policy which is primarily intended to tackle cross border tax avoidance. It’s hard to see how these extra burdens, particularly in the current uncertain economic climate, will help the Government achieve their desired policy outcomes for housing, growth and full employment given the importance of the construction sector as a major employer.

‘Given that the UK currently faces an uncertain regional and global economic outlook, particularly following the EU referendum, now is not the time to rush through fundamental changes that could negatively impact the attractiveness of the UK as a place to invest and do business.’