The UK Government has published a consultation on a new tax, specifically targeting UK residential property developers. The tax is to be called the Residential Property Developer Tax (RDPT) and will be introduced in April 2022. It is expected to be included in the 2021 Autumn Finance Bill. Initial plans were first discussed in February 2021 in response to the cladding renovation work required.
Residential Property Developer Tax – The Background
The Tax is in direct response to the Grenfell tragedy in June 2017. The tragedy shocked the nation and triggered a large shake-up of building safety within the construction industry. The fire was started by a malfunctioning fridge-freezer on the fourth floor. Flammable cladding is thought to have contributed to the rapid spread of the fire. As a result, the government has undertaken a £5 billion cladding remediation project to remove all similar cladding from other buildings.
The basis of the tax is to fund the cost of replacing unsafe cladding for all leaseholders who live in residential buildings taller than 18 meters. Currently leaseholders, rather than developers are having to foot the cost. The government justifies the tax on developers by saying developers need to pay their fair share. They go on to say, they will be the main beneficiary from the end result.
Overview of RPDT
There are expected to be two models. The first model would be aimed at companies who undertake ‘any’ amount of property development in the UK residential sector. Profits made from other activities the companies participates in would also be subject to the taxes. This would include commercial property development or mixed developments.
The second model would target UK residential property development only. Only UK residential property development work would be subject to the Residential Property Developer Tax. If there was a mixed-use development initiative, only the profits derived from the residential work would be taxable.
There will be a number of adjustments relating to interest, funding costs, and pre-April 2022 losses.
What are the Next Steps?
The consultation started on 29th April 2021 and is expected to run until 22nd July. Businesses who have any interest in residential property development will want to engage with the consultation to understand how the new tax could effect them. Key discussion points will include what is classed as residential, the impact on the build-to-rent market, how the different models of tax will impact businesses and the taxation on joint venutes.