Without doubt a feeling of confidence in the new coalition will be the best prospect for the property industry as a whole and we expect the same to be true for our clients.

Uncertainty creates a state of stasis where clients hold back from buying; lenders don’t lend; the public sector freezes up and money becomes more expensive. The hung parliament was in danger of exacerbating this and the swift conclusion will be well received.

The effects of the election result on this firm’s law practice and our clients attitudes to the new Government remain to be seen. Our principle business is in the property sector which has enjoyed resurgence of late and whether this continues will depend in part upon the confidence that this coalition Government can engender in business, investors and end users alike, as well as the effect on lending that their policies for the reform of the banks may have. Many of the Government’s first policies will reflect the fragile state of the economy and an emergency budget, expected within the first 50 days, will signal their intentions for the duration of the Parliament to come.

Whilst the Liberal Democrats have dropped their proposals for a “mansion tax” on properties costing more than £2 million, Capital Gains Tax paid on “non business” assets such as shares and second homes (currently at a flat rate of 18%) is likely to rise close to the 40% rate of Income Tax. This is of course set against the proposal to raise the Income Tax exemption to £10,000, the Liberal Democrat election proposal. The Conservative proposal to scrap HIPS may also have an impact on the residential property market.

Many of the Government’s forthcoming policies will influence property development, in particular regeneration and planning. The planning system at present is widely perceived to actively prevent developers from meeting consumer demand for property, which is at variance with the aggressive housing targets that the outgoing Labour Government set. A simplification of the procedure would undoubtedly lead to a greater appetite for developments to be advanced.

The role of the banks will equally be important, not less as a result of the Taxpayer now owning £150 billion worth of property through the state owned banks. The argument for the return of empty rates relief will no doubt also be strongly made in the coming months.

Day to day we have heard commentary from some clients that they are keen to understand the future implications of Government policy before committing to long term projects. The CGT rise in particular could lead to a flood of property onto the market, as buy-to-let investors look to avoid the rise, the expectation that such properties will fall within the definition of “non-business” assets. The scrapping of HIPS could also give a fillip to prices, as may the suggestion that VAT is likely to rise. Foreign investors are equally looking for signs of stability before committing to investing in the UK.

We expect that now the new Con/Lib Government has been formed clients will continue their business activities, some of which may have been put on hold during the election process, confident that there is a Government in place that will support business in general, with a view to returning the economy to strength.

Written by Daniel Abrahams, Partner at Philip Ross Solicitors.

13th May 2010


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