The Government has today launched a three-month consultation on the creation of a new residential developer tax aimed at collecting at least £2 billion to help contribute towards the cost of cladding remediation work.
The new Residential Property Developer Tax (RPDT), first announced in February by Housing Secretary Robert Jenrick, will be levied on developers’ in-scope profits above a £25m allowance and will be introduced in addition to the new ‘Gateway 2 levy’ which will be paid by developers of new higher rise schemes.
The consultation is now open and submissions are sought by 22 July.
Scope
The Government has stated that it intends for the tax to be focused on ‘the largest corporate undertakings that make money from UK residential property activities’. The tax will apply to developers’ group profits whether individual dwellings are sold or chunks of sites are sold in bulk. To this end, profits derived from Build to Rent developments will also be within scope.
The Government has set out a range of options within the consultation to deal with the technical aspects of capturing within the scope of the RPDT the full extent of activities of companies with overarching group structures. And the RPDT will apply to all developers with relevant activities anywhere in the UK.
Allowances
The Government proposes that the new RPDT will only apply to the profits of a company or group which exceed the proposed annual allowance of £25 million. This £25 million allowance will be group-wide and unused allowances will not be carried forward into future years.
Rate
The Government is not consulting on specific proposals for the RPDT rate. This detail is to be considered after the design of the tax is settled and announced at a future fiscal event – likely at the Budget this autumn. The Government has set out a number of principles that it intends to use to determine the final tax rate:
- The tax burden should be proportionate and considered in the context of the planned Corporation Tax rise to 25% in 2023
- The tax should raise ‘at least £2bn over a ten-year period’
- The tax should apply to the largest residential property developers
- The tax should not have a disproportionate impact on housing supply, or other government objectives on housing
- The rate is intended to be stable and not fluctuate year-to-year
The consultation makes clear that should the RPDT fail to raise sufficient revenue over a decade, the Government would consider extending the duration of the tax beyond 10-years.
Development of specialist retirement schemes
The Government seeks to draw a distinction in the consultation document between schemes where ‘care and allied service functions such as catering and cleaning are provided as integral part of a communal dwelling’ and those ‘retirement communities that offer accommodation and communal facilities for older persons that are not reliant on care provision’. In the case of the latter, the consultation document makes clear that Government considers that relevant profits should fall within scope but that profits relating to the former should remain out of scope of the RPDT.
Interaction with Gateway 2 levy
The new tax should be considered alongside the introduction of the new Gateway 2 levy being legislated for through the Building Safety Bill. As part of this consultation the Government is seeking views on the likely cumulative impact of the RPDT and the Gateway 2 levy on new higher rise developments and the interaction between the two new fiscal requirements on developers.
Commencement
The RPDT is expected to apply from 1 April 2022, to profits recognised in accounting period ending on or after that date. Where a company’s accounting period straddles 1 April, the company will be required to create two deemed accounting periods.
Anti-avoidance
The Government is seeking views on anti-avoidance measures to prevent forestalling, fragmentation or re-characterisation of profits.
Impact on housing supply
Treasury is seeking views on potential behavioural responses from home builders and an assessment of the likely or potential impact on investment appetite, build out rates and overall housing delivery. However, the starting position for the Government is that costs of construction, including new fiscal requirements, are comparatively less important in determining build out rates than wider local housing market determinants.
Affordable Housing
It is intended that profits derived from the development of Affordable Housing would be within scope of the RPDT. Government is also seeking views on wider potential implications for the delivery of Affordable Housing that may arise as a by-product of the new tax.
Consultation period
The deadline for consultation responses is 11pm on Thursday 22 July.
Links
Today’s announcement can be found here.
The full consultation document can be found here.
Details of the Housing Secretary’s announcement on 10 February can be found here.
David O’Leary, Policy Director
