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New residential property developer tax proposed

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The Treasury has launched a consultation on the design of a new residential property developer tax (RDPT) as part of the UK government’s measures to address unsafe cladding on high-rise buildings.

The government intends for this to be a time-limited tax, with the aim being to raise cumulative revenue of at least £2bn over a decade, so that industry ‘pays its fair share’ for government interventions regarding the remediation of unsafe cladding on high-rise residential buildings.

The new tax would apply to the profits of companies undertaking residential property development activities. The government proposes that the charge would apply to profits to the extent that they exceed an annual £25m allowance. The rate of tax ‘is expected to be announced at a future fiscal event’.

The RPDT would apply from 1 April 2022, to profits recognised in accounting periods ending on or after that date. Transitional rules would be introduced to deal with the first chargeable periods following implementation of the RPDT.

There would equally be a need to ensure that the tax applies to a comprehensive measure of profit from residential development activities and is robust against fragmentation of activities within a group structure.

The objectives above would need to be achieved through a tax that is simple, consistent with the UK’s international legal obligations (e.g. its territorial taxing rights and Tax Treaties) and minimises economic distortion.

Two alternative ‘models’ for the tax being considered:

  • Model 1 – a company-based approach: this would tax all of a company’s profits (including profits from commercial property development) where that company’s activities include more than an “insignificant” amount of residential property development.
  • Model 2 – activity-based approach: this would impose RDPT on any company that undertakes any amount of UK residential property development, but the tax would only be applied to profits from the residential property development activities.

As Kate Garcia, principal tax associate at  Shoosmiths, observes: ‘An interesting point arising from the consultation is that the government recognises that many large developers who could end up paying this tax have had limited involvement in the development of high-rise buildings that require remediation, and others have taken independent steps to cover the costs of remediation where applicable. However, it is claimed that the government has supported confidence and liquidity in the residential property market through the temporary SDLT rate reduction and mortgage guarantee scheme, and this buoyancy in the property market is claimed as the justification for the tax being imposed.’

The consultation seeks views on the design, implementation and administration of this new tax ahead of this new tax ahead of its inclusion in a future Finance Bill.

In addition, a new ‘gateway 2’ levy is proposed; this would be applied when developers seek permission to develop certain high-rise buildings in England.

The consultation closes at 11:45pm on 22 July 2021.

Issue: 1530
Categories: News