While a tax giveaway is unlikely due to uncertainties surrounding Brexit negotiations and the potential for further geopolitical shocks, the chancellor could do more to back small and medium-sized (SME) builders and encourage higher housing densities in urban locations.

Property developers

Most SME builders lack the funds necessary to undertake large-scale developments. Instead, they rely on acquiring existing residential plots, demolishing the existing property and replacing it with a number of smaller houses or flats.

However, the additional 3% SDLT surcharge that was introduced in April 2016 has meant that the cost of acquiring such sites has increased, because there is no exemption from the surcharge, even if the existing residential property is to be demolished and replaced.

SDLT has to be paid within 30 days of acquiring the site and represents a significant up front cost for developers, who often operate on tight margins. Ultimately, the additional cost either has to be passed on to home buyers when the new properties are eventually sold, or it comes off the developer’s bottom line.

An exemption from the 3% SDLT surcharge for SME developers who increase the number of homes on an existing residential site would demonstrate the government’s commitment to both increasing housing density and to opening the market to smaller developers.

A further move which would demonstrate support for SME developers would be the removal of the requirement to file ATED relief claim forms. Although commercial developers are exempt from annual ATED tax charges, they must still file an annual form to claim this exemption.

Developers already have a significant amount of paperwork and bureaucracy to deal with and the annual ATED form often gets overlooked. Penalties for failure to file or for filing late can be onerous and an automatic exemption from the scheme would help to reduce administration.

Property investors

The new rules which restrict the amount of interest that buy-to-let landlords can deduct when calculating their taxable profit are set to come into force on 6 April 2017. For many property investors who have built up portfolios of buy-to-let property to provide a replacement to employment income or as an alternative to a pension, the impact could be devastating.

In the worst case scenario, some landlords could end up paying tax on a property portfolio that actually makes a loss and may be forced to sell some or all of their properties as a result.

Ironically, the government’s housing white paper, states that the loss of a private sector tenancy is now the most common cause of homelessness in England and yet no consideration seems to have been given to how tenants will be housed if their landlords are forced to sell up.

Many private sector landlords provide social housing and if these rental properties are removed from the market, local councils will be forced to find alternative accommodation for tenants, in an already overstretched system. Furthermore, landlords often provide Houses in Multiple Occupancy (HMOs), which accommodate more people than would be the case if the house was owned as a private residence by just one family.

The government should address these issues by abolishing the proposed interest restriction rules, or at the very least modifying them so that no landlord would pay tax on loss-making properties.

The property market

The market for properties worth in excess of £1m has slowed significantly, partly due to the prohibitive SDLT cost of acquiring properties in this price bracket. By reducing the SDLT charge on properties worth more than £1m the top end of the housing market would free up, meaning that families can move up the property ladder and increase the availability of homes at the more affordable end of the market.

Rebecca Wilkinson is a corporate tax senior manager at Menzies LLP

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