British Property Federation (BPF) has expressed concerns over a recommendation made to the government to restrict tax deductibility of interest to between 10% and 30%, fearing it will lead to less investment into the built environment.
The Organisation for Economic Co-operation and Development (OECD) made the recommendation as part of an initiative to stop multinational companies from moving profits between different companies in order to reduce their tax bill.
The BPF said restricting the tax deductibility of debt will increase its overall cost to real estate investors, reduce the amount of debt capital in the industry and have a negative effect on investment.
Melanie Leech, Chief Executive of the BPF, said: “While we support the OECD’s intent, which is to address tax avoidance by multinationals, we are talking about a potentially very significant change to how debt finance is taxed in this country.
“This could have an enormous impact on capital intensive industries like real estate that are heavily reliant on debt funding.
“The proposals will make it more expensive for real estate investors to fund themselves through borrowing and this will have a knock-on effect on how much investment makes its way into our towns and cities.
“Government must bear this in mind and consult closely with industry before taking forward any of the OECD’s recommendations.”
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