DON’T LET THE TAX TAIL WAG THE INVESTMENT STRATEGY DOG

It is just a fortnight now until Rachel Reeves introduces the first Labour Budget for 14 years, probably the first socialist leaning budget since the 1970s, writes Guy Gowing.  Although there has been much speculation, she has largely managed to keep a lid on any leaks of what might be in the speech. 

But the direction of travel is clear: she will be attempting to square the circle of stimulating economic growth while at the same time finding extra money through taxation to revive the UK’s public services.  This is the platform on which the government was elected in the General Election; now the Chancellor must somehow work her magic to deliver on those promises. 

It seems certain that increases in capital taxation will be announced; the only ambiguity is by how much.  The more excitable headline writers are already penning lurid banners about how investment will flee the UK.  But rather more likely is that the majority will simply adapt and get on with it, as they always do.

A new government making big economic changes is nothing new – most do it.  Panic and kneejerk reactions are seldom the best policy, even if some sections of the media seem to be talking them up.

What is certain is that change is going to happen whether we agree with it or not, and there seems little point worrying unduly about things which are out of our control.  For property investors, the important thing is to focus on those things which you can affect; simply complaining will achieve little or nothing.

No-one should let the tax tail wag the investment strategy dog.  Capital taxation is just one element in the mix, and there are others which investors can do something about, such as ensuring they have healthy landlord/tenant relationships, enhancing their assets, and making sure that their generational and succession tax planning strategy is robust.

There may be the odd rabbit pulled out of the Budget hat.  We have written previously that reform of business rates to create a more equal playing field between bricks and mortar and online retail is something which Labour talked a lot about before the election; I for one look forward to hearing the detail of how the Chancellor intends to deliver on that promise, after all business rates is traditionally an occupier’s tax.

Ultimately it won’t be the details of taxation changes which will signal the success or failure of Mrs Reeves’ first Budget, but rather how it affects the wider economy.  If she can achieve the growth she says is her priority, then the pain of tax rises will be mitigated.  As is almost always the case when it comes to property investment, it is this wider economic picture which really matters, so please remember property investment is a long term investment, not for the “fast buck”!