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Property

September 12, 2014

I’m fascinated by the rationale behind the sixth and final tax consultation closing this week, into the Stamp Duty Land Tax rules for property investment funds.

As the foreword says:

The UK Investment Management industry is an important and successful part of the economy.  It accounts for 1% of GDP and a similar proportion of UK tax revenues, is a significant employer and is a key part of our wider financial services sector.

While the UK is Europe’s leading centre for fund management, often the funds themselves are located elsewhere.  About 36% of all assets under management in Europe are managed in the UK but only 11% are domiciled here…

The aim of this strategy is to improve the UK’s leading global role in fund management and increase our market share of fund domicile…

Reading between the lines (and not very far between them, to be honest) the consultation seems to have resulted from pressure from the investment management industry to relieve two types of investment from stamp duty land tax.  The first, CoACS, is a type of “authorised contractual scheme” introduced last year, a “co-ownership scheme” (the “co” from CoACS).  Investors own the underlying assets, but there’s a collective investment scheme doing the buying and selling.  Theoretically, they could be charged to SDLT every time someone joins or leaves the scheme, because the remaining investors’ shares of the property would go up or down.

The second type is PAIFs, property authorised investment funds, which were invented to enable people to invest in a mix of residential and non-residential property as well as real estate investment trusts.  Here the problem seems to be that when properties are moved into a PAIF even when the beneficial ownership doesn’t change there is a charge to SDLT and the consultation wonders whether these “seeding” transactions should be relieved from tax and, if so, how.

My issue with all this, of course, is that I genuinely don’t care if rich speculators have to pay some tax when they move their investments around from one kind of investment vehicle to another.  Looked at in that light, this isn’t a consultation that ought to be answered only by “the asset management and property sectors” but by the rest of us as well.

For example, in 2.6 we are asked to believe that the main impact of making the changes would be that property investment portfolios would be transferred into CoACSs and PAIFs which would “create larger pools of assets and benefit from economies of scale”.  But in 2.7 we learn that “more property funds would also mean greater competition within the sector”.  Would it, though?  Or would it just mean that the companies that blight the landscape with shopping malls and cookie cutter student accommodation would be enabled to do so without enduring some of the tax consequences?

Basically, what are we wanting from the property market?  Do we want to encourage “investors” to buy up (particularly residential) property in giant megacorps, or do we want the property market to be driven by something other than profits – like, say, the need actually to house people?  “Collective investment schemes are increasingly investing in residential property and [the government] does not want to limit growth in this area” (3.9)  You know what?  Fuck that.  If we were talking about assisting organisations that were planning to BUILD residential property then yes, I’d say let’s make life easy for them.  But we’re not.  We’re talking about the organisations that bundle and securitise assets, squeeze all the profits they can out of them, and then walk away.  Let them at least pay taxes on doing so.  One per cent of the economy?  The housing market is somewhere between five and 18% of GDP.  Let’s concentrate on the bit that actually provides houses for people to live in, rather than profits for investment portfolios.

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