Today, the UK general election keeps pundits on the edge of their seats amid a predicted Conservative win. Brexit will be at the forefront of the discussion, with the NHS coming in close second. However, it’s important to look at the broader implications of the outcome of this vote. In any election, laws around tax and property sales will also be affected in the long run, and indeed, transaction tax is firmly on the agenda.
The market factors of the general election, Brexit and technology are truly ones to watch. We will now examine how the property market and sales tax may change, through the lens of these key market factors. We will then touch on how the “sell-side” can adapt to benefit from these changes
The UK General Election
In the case of a Labour win, John McDonnell, shadow chancellor, reported that Labour would uphold “a fair taxation system, make sure we can fund our public services, make sure everyone actually pays their taxes as well so we do tackle tax evasion and avoidance”. This will certainly affect sales tax and property tax. Indeed, the ‘Land for the Many’ document created at the behest of the Labour party includes proposals to increase CGT rates on sales of any property that is not a main residence. This appears to extend to non-residents with UK property interests.
The outlook for property tax if the Conservatives win is similarly impactful. Foreign buyers of UK properties will be subject to a 3% higher stamp duty rate than UK residents.
Brexit is another factor affecting the property market. Immediately after Brexit’s announcement in 2016, a number of high profile commercial property deals were cancelled. This included the purchase of a landmark office block by German client Union Investment. Tracking that progress through to today, the market has stabilised somewhat. The office and industrial sector has significantly boosted UK commercial property values. In the third quarter of 2019, UK commercial property values were up 0.4 per cent.
Retail property remains an area of concern and rapid change, though even that has shown some improvement. The decline in high street shop rents decreased to minus 0.8 per cent, from minus 1.1 per cent in the second quarter of 2019.
Around the time of the general election, this is tempered by a feeling of optimism – if the latest developments in UK politics result in a solid Brexit deal, the UK real estate market may witness an uptick in investor sentiment and activity.
As touched upon in our last article, technology is rapidly changing the commercial property market. For example, technology is allowing more and more people to work from home, while many firms employ remote workers. This reduces demand for larger, traditional office spaces. Meanwhile, retail also suffers as e-commerce takes over and the “retail apocalypse” results in hundreds of traditional store shutdowns. However, retailers working with, instead of against, the e-commerce trends are experiencing great success, with e-commerce popups and small stores opening in shopping malls across the US.
When it comes to the sale of these properties, they must be enhanced and connected, in order to speak to the new digital world. Using property sales platforms, sellers are able to list these directly and buyers are connected to a plethora of vital information. However, tax information is one element not often included in this newly connected sector. Traditional commercial real estate brokers are still key players in ensuring that tax information is accurately communicated.
Adapting to Change
So, how can the sell-side best benefit from this? Our advice: in the wake of the general election, calibrate your sell-strategy to best suit the upcoming regulatory changes. As always with technological innovations; get on board. Ensure that property sales are enhanced by the latest tech, to ensure the best deal.
As mentioned in our previous article, no matter the outcome of the election and the associated Brexit plan, the external factors affecting the market will continue to affect property sales and property tax. These, namely, are the advances in technology and innovation which are sending shockwaves through the industry, reclassifying property value as they go. This is pulled into sharp focus within the retail property sector, in particular, and should be used as an example to us all.