Nick Williams, managing partner of Arnolds Keys, says thinking in the long-term is essential for property investors during the current Middle East conflict.
After the Covid pandemic, the invasion of Ukraine by Russia, and the fallout from the Truss/Kwarteng ‘fiscal event’, investors and businesses could be forgiven for hoping for a period of ‘no news’ calm, in order to rebuild confidence and embark on longer-term planning with at least a modicum of certainty.
So, President Trump’s decision to go to war with Iran – and the inevitable resulting political and economic turmoil – is most unwelcome. Just as we seemed
to be getting inflation under control, and with the prospect of regular interest rate cuts across 2026, the latest literal and metaphorical bombshell has once again thrown everything up into the air.
Nick Williams, managing partner of Arnolds Keys (Image: Arnolds Keys)
It is not just the immediate effect on energy prices and their consequences for the economy which is a worry for investors. If inflation starts rising again, the Chancellor’s financial headroom will become ever-more squeezed; if the war drags on, she may be tempted, or indeed forced, to think about raising taxes once again in her autumn Budget.
Given that shifting the balance of taxation on earned and unearned income has long been an aspiration of the Labour Party, any need to increase Treasury revenue could well see a further increase in capital taxes, with the potential for higher rates and/or lower allowances, as well as potentially further reining in benefits such as Business Property Relief.
Mrs Reeves has already signalled her desire to move towards a unified land and buildings tax to replace the current system of council tax (which is based on valuations which are now more than three decades old), stamp duty (which, as it is only payable when a property is purchased, could be said to encourage people to stay put) and business rates (which many argue is not working well). Global conflict could encourage her to accelerate that process.
So, what should the property investor do, given yet another global economic shock, and the fact that they could be facing higher tax bills when they come to divest their portfolios?
Planning your investment strategy solely based on tax considerations is a mistake. There are many things to take into consideration: potential income from rents, future capital growth, and the fact that property investment can be leveraged in a way that a cash investment never can.
But above all, remember that as with any field of investment, short-term, knee-jerk reactions are almost always the wrong answer. Instead, keeping a calm head and thinking in the long-term is the advice – and keeping our fingers crossed that the Middle East conflict does not drag on to the point where the underlying economy starts to suffer damage.
For more information, visit arnoldskeys.com