RLA : RPI : Incentives and Disincentives

News from the Residential Property Investor, the bi-monthly magazine for RLA members

other artilces from the April / May 2001 issue

Incentives and Disincentives - April / May 2001

The Chancellor has decided that private investment in rented housing is to be encouraged in certain areas designated for regeneration. The key is to allow reduced VAT rates on improvement schemes at 5 per cent.

This is a serious change of heart. Up to this point the Chancellor has increased the costs in the private rented sector through increased stamp duty on lettings and on property purchases. He has also seriously reduced the amount that local authorities have for grants for the private sector through the Minimum Repair Allowance that ring fences housing budgets for council property.

New interpretations to costs allowable against profit by the Inland Revenue from April have increased the cost of letting. And not forgetting that the Chancellor managed to kill off housing investment trusts completely in his first 100 days.

This new measure is aimed at regeneration. But a previous decision to charge council tax on empty property is having a negative effect on regeneration. In such areas where property cannot be let, investors awaiting 'regeneration' have to remove house roofs to limit the burden of the council tax.

I doubt whether the reduced VAT charge will have a significant impact on investment. It reduces perhaps no more than 40 per cent of overall costs by 12.5 per cent but will bring increased red tape in accounting for the VAT.

The Chancellor should reverse the council tax and stamp duty initiatives, and the latest IR interpretation on allowable expenses. He should also reinstate the funding for private sector grants.

Then he should introduce some real tax incentives like zero rate capital gains tax and other tax holidays for risky investment in regeneration areas.

Martin J Moylan

other artilces from the April / May 2001 issue