The property industry is calling on the government to change its finance bill, warning that measures to clampdown on multinational tax avoidance will also put £20bn of finance for UK developments at risk.
The UK government is cracking down on tax avoidance in its annual finance bill by limiting companies claiming interest as a tax-deductable business cost.
The aim is to stop multinationals from trimming their tax bill by, for example, financing business through debt owed to overseas subsidiaries, and claiming the interest as a business cost in the country where revenues are actually generated.
But the British Property Federation (BPF) has argued that the property industry is rarely a risk for this form of tax avoidance. Third party real estate debt is typically borrowed from a lender in the same country as the asset on which it is secured, posing none of the risks at which the measures are aimed.
The BPF argues that the complex rules the government is proposing will unnecessarily restrict the flow of credit that property developers need.
The Treasury has agreed to a carve-out for the industry, but has applied conditions the BPF says will make it inviable to finance a sizeable number of developments.
Ion Fletcher, director of policy at the BPF, said that the "vast majority" of the group's members are worried about the draft legislation, and that the government could have taken more time to consider how it would impact the real estate industry.
"The government could have taken more time," he said.
He said Margaret Hodge, the Labour MP who has been a fierce critic of tax avoidance, had taken an interest in the issue and that the BPF has also raised concerns with the Treasury select committee. The consultation ends on Thursday.
"Because of the wider changes in prop finance since the crisis…the appetite of the banks to provide debt has been changing," said Peter Cosmetatos, chief executive at the Commercial Real Estate Finance Council Europe.
"One of the areas where the recovery has been so anaemic has been development finance.
"A measure that is going to make this more difficult and more expensive is especially dangerous and damaging at a time when we need develop."
A Treasury spokesperson said: “Our internationally backed rules will stop multinationals artificially shifting taxable profits overseas through interest payments.
"In line with evidence presented during our consultation, including from the British Property Federation, we’ve made sure that companies that fund infrastructure through debt, including rental property projects, are able to continue to use third party debt to fund their projects"