With the Institute for Fiscal Studies telling the chancellor that he’s got a £20bn black hole in his budget, there’s little likelihood of our cash-starved public services getting what they need in November. But it doesn’t have to be like this.
By accepting New Clause 2 of the Finance Bill today, Mr Hammond can send a powerful message that Britain expects all those who make money from trading on our shores to pay their taxes here. In the process he could raise at least £6bn to plug the growing gap in his spending plans. Contrary to what you may have been told money can grow on trees-it’s just in this instance their roots are overseas.
It was his predecessor who first recognised the need to challenge those making money out of our UK property market whilst not paying UK taxes. When George Osborne introduced Capital Gains Tax on the sales of residential property by non-UK companies in 2015 he expected it to raise a mere £1.5bn over the lifetime of the parliament. Applying the same principle to the commercial property they own could raise far more and make our tax system fairer. British businesses paying corporation tax on their capital gains from commercial property sales rightly feel aggrieved at those who use non-UK based companies and trusts to hold property and sell it and so avoid such charges.
Indeed, given the sums involved, it is hard to see how and why property would be held in such overseas trusts if not to avoid tax. Commercial property represents 10% of our total economy- a whopping £115bn worth of sales in 2015 alone. Yet 30% of property is held in such off-shore trusts meaning any such sales involving these companies would have avoided not just stamp duty but also these capital gains charges. Even accounting for any potential impact of closing this loophole on the prices achieved in property sales, it is clear NC2 could raise much needed billions from those making millions from trading in the UK, even if their stated address may be a different postcode entirely.
With austerity biting hard on all fronts, this loophole and the loss to the exchequer it represents cannot be ignored any longer. Indeed, as our police stations close, and the funding for nursing bursaries are cut, it is particularly galling to see legal firms setting out how by simply registering your company in Jersey you won’t be charged Capital Gains Tax on the sale of property. That we recognised the need to tackle this issue for residential property ownership only makes continuing to leave this loophole open for commercial property – and so in effect encourage this behaviour – all the more inexcusable.
MPs on all sides of parliament will be seeing the impact of public sector cutbacks in their constituencies, and worrying about whether Brexit will bring further bad news. They know when the Budget comes, there is likely to be little to cheer – and perhaps much to fear- unless additional funding is found. Little wonder there is a growing cross party consensus that this particular magic money tree is both very real and needs a very good shake.