Residential property developer tax proposals aim to raise £2 billion

19.05.2021
Natalie Miller
Tax

The government issued a consultation paper at the end of April proposing a new ten-year tax on property developers which will help cover the cost of the cladding remediation work required following the Grenfell disaster. However, the targeting at all developers, not just those who may have affected properties and the £25 million definition of large, may not be far out of reach.

The Government stresses that this proposed new tax isn’t intended to imply that those who pay it are responsible for the historical defects with cladding, but the government need to fund the building safety package which they introduced in February. It is considered that larger developers will benefit from the funding and from the more confident marketplace, so ought to contribute to the costs.

The new tax is described as Residential Property Developer Tax (RPDT) and will be introduced in 2022, with the aim of raising at least £2 billion over a decade.

The proposal is that RPDT will be payable by companies or corporate groups which undertake UK residential property development activities generating annual profits exceeding £25 million.

The government is asking for feedback on several elements:

  • The proposed definition of residential property, which includes buildings and land used as, suitable for use as, or being adapted to be used as, a dwelling; plus undeveloped land where a residential property is to be built. They also want to know whether companies could identify profits on such property.
  • The proposed exemption for affordable housing and some forms of communal housing, but not necessarily for student housing and retirement housing.
  • The possible inclusion of income from the development stage of build-to-rent activities.
  • The two possible models for the design of the tax, applying the tax to either total profits or to profits attributable to property development activities.
  • The best way to apportion income and expenses to those activities and what the implications would be of excluding interest and funding costs from the profit measure.
  • What level of losses, if any, does the property sector expect and how should those losses be taken into account.
  • How to apply the RDPT to groups of companies and joint ventures.
  • The appropriate rate of the tax charge, given that it should be proportionate, raise at least £2 billion, apply to the largest developers, should not affect housing supply and not fluctuate.
  • The interaction with proposed ‘Gateway 2’ levy which will be applied when developers seek permission to develop certain high-rise building in England.
  • Whether the administration of RPDT will follow, broadly, corporation tax lines.

Consultation is open until 22 July, after which we should see further consultation on the draft legislation before it is included in a future Finance Bill. Companies who may be affected should consider making a response directly or via their industry body, to make sure that their views are represented. 

If you could benefit from speaking to an adviser

Wide-ranging tax planning and compliance services for individuals seeking advice and guidance from our team of experienced and highly qualified professionals.

Friendly and coherent advice and guidance on accounting and tax matters for small business owners including those starting out for the first time.

Established businesses requiring accounting and tax compliance services, forward thinking tax planning advice and the support to help your business succeed.

Our full range of enhanced corporate services aimed at large companies and those requiring audit, assurance, corporate tax advisory and diverse tax planning services.

Glossary

Test

This is a test definition

more