Government proposals for offsetting interest against tax could bring about a “death by a thousand cuts” on property markets, according to Property Agents Independent.
The trade body, which represents a network of independent commercial surveyors across the UK, is encouraging the property industry to respond to government proposals that could see an end to interest on debt being tax deductible.
The proposals are part of a government response to a Europe-wide call for a curb on profit-shifting practices carried out by multinational corporations, but Property Agents Independent believes the move could have a disproportionately harmful impact on the property industry.
PAI says such a move could see the cost of debt rise to levels that could affect future capital flows and therefore further investment in property, and see costs passed on to tenants. The costs incurred could also make some companies insolvent.
PAI’s assertions were backed by the British Property Federation, which said the cost to the industry could be as high as £660m a year and would hit REITs particularly badly.
The BPF said it believed REITs would become anticompetitive with their European counterparts.
Similar rules in Europe had already made REIT-style vehicles exempt from such tax rules and could put off investors in their UK peers, said the BPF.
In addition, the BPF fears the proposals risk making existing loans unprofitable.
The closing date to respond to the government proposals is 14 January.
