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Tax threat to private rented sector growth

Developers active in the growing private rented sector are warning that tax changes proposed by the government could drive away essential foreign investors.
A consultation currently open to responses suggests introducing Capital Gains Tax on the sale of UK residential property. This could apply, it is suggested, even if the investment was made through an overseas fund, a vehicle that is currently exempt from a CGT charge.
“The government needs to make it very clear that it wants to encourage institutional investment,” said Bruce Ritchie, the chief executive of Residential Land, speaking to Property Week. The developer has built a substantial portfolio of rental properties in London, supported by overseas investors. “Foreign investors bring billions of pounds into the UK. At one end of the spectrum, it is saying that we need more homes and at the other, it’s thinking about taxing foreign investors.”
Also wary of such changes are developers Delancey, Capital & Counties, Land Securities and Grainger, all of whom have made responses during the consultation process. “It’s a very vulnerable time for this market,” said Grainger. “The government should not put securing investment at risk.”
The British Property Federation warns that the progress already made in the sector could be undermined by changes. “Imposing a further tax is very likely to act as a deterrent to those making large scale investments in the UK’s housing stock.” said the BPF’s Ian Fletcher.
The comments around the tax change contrast with views expressed just days ago about the progress of the private rented sector. Speaking at a recent conference and reflecting on the impact of the first year of the Build to Rent fund, Fletcher noted: “Good progress has been made in a short period, and initiatives such as the Build to Rent fund have helped in establishing the model and encouraging delivery. Projects on the ground are being delivered and there is real momentum coming from various players to put in place the market infrastructure that will further help to attract investors.”