Tax cuts

Lender urges government to offer developer tax incentives

Reducing tax on property development schemes would stimulate the supply of new homes, according to one development finance lender.

A recent report published by the Home Builders Federation (HBF) found that the number of SME builders has been reduced by 80% over the past 25 years.

One of the key reasons for this was the number of barriers preventing smaller housebuilders from playing a bigger part in tackling the housing crisis.

On the back of the report, HBF suggested that one of the ways the government could solve this issue was to remove barriers for builders so that they could access tax incentives and other support that’s enjoyed by SMEs in other industries.

Meanwhile, last February, the Federation of Master Builders reported that housebuilders were being hit with council tax burdens which was hindering developments.

Alex Moss, operations manager at Zorin Finance, said that the common counter argument for not providing tax incentives for a given investment or product is that it would mean a reduction in income for the Treasury.

Should Philip Hammond introduce tax incentives for developers?

“However, with property, the concern must first and foremost be to incentivise developers to develop, as the government will struggle to accrue tax revenue on properties which are never built.

“Reducing tax on property development schemes will increase developer profit margins, while simultaneously stimulating the supply of new homes.

“The result: more homes that cost less to build in addition to a subsequent stamp duty land tax windfall when the homes eventually sell.”

Rico Wojtulewicz, policy adviser for the National Federation of Builders, added that developers also supported a wide range of career opportunities.

“They are a vital tool in delivering the positive change that tax incentives often try to facilitate.

“For example, if the ‘green deal’ focused on SME developers as well as consumers, the energy efficiency industry would have been further driven to innovate, reduce costs and deliver apprentices.

“Leaving developers out has had a negative impact on cementing an industry-quality standard.”

'The government could stimulate the provision of new homes'

Alex added that the government could use tax incentives in a way to solve the chronic issue of developers mothballing sites and not building.

“For instance, the government could stimulate the provision of new homes by reducing the amount of stamp duty land tax that developers pay on land purchases in return for a promise from the developers to commence building out the site quickly.

“The same approach could also be implemented on the corporation and capital gains tax payable on the profits from such developments.”

Tax incentives could be used to speed up housebuilding

Alex concluded by looking at whether the government should look at introducing tax incentives to people looking to invest in property as a nest egg for the future, saying it could help to avoid a potentially calamitous future welfare burden.

“On a more domestic scale, property development has long been a popular way in which individuals and families have augmented their pensions and secured their financial future.

“Much as the successful Isa scheme allows people to benefit from investments in both savings accounts and stocks and shares without paying tax, during a period of almost subterranean interest rates and a housing supply crisis, there is little reason for the government not to also enable people to invest in developing second homes in a tax-efficient manner.”

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