Rona Westgate

Senior Knowledge Lawyer

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Claire Hawley

Senior Counsel – Knowledge

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Rona Westgate

Senior Knowledge Lawyer

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Claire Hawley

Senior Counsel – Knowledge

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27. Mai 2021

UK government consults on proposed residential property developer tax

  • Quick read

The UK government's consultation on the new residential property developer tax (RPDT) proposed as part of the response to the cladding crisis is now under way. This tax was announced as part of the government's measures to fund the costs of removal of unsafe cladding in residential buildings and the government is seeking views on the design and scope of the tax to ensure that it works as intended and is proportionate.

The Consultation ends 22 July 2021. A separate consultation is proposed for the developer levy to be payable on Gateway 2 under the new regime for higher risk residential buildings in England under the Building Safety Bill.

What are the key features of the RPDT?

The proposed RPDT seeks to raise £2 billion over the next decade and targets the money that the largest residential property developers make from their UK residential property development. The £2 billion is intended to represent a "fair allocation" to the overall costs of the cladding remediation programme.

The rate to be applied has yet to be determined but the RPDT will fall on profits which exceed an annual allowance of £25 million. 

The RPDT is time limited and intended to last for 10 years only (but may be extended should the £2 billion target not be met).

What development activities are covered?

  • The RPDT is aimed at the development activities for residential properties located in the UK for either sale or rental. It includes conversion of existing buildings as well as new construction. 
  • The tax would apply regardless of whether development was completed with the aim of disposing of leasehold or freehold interests, including commonhold interests. It will also apply where a site (or part of a site) in development is sold, as well as when the original developer sells the individual dwellings.
  • The proposed definition of residential properties would include "a house or flat that is considered as a single residence, generally together with the grounds and garden or any other land intended for the benefit of the dwelling". This will also extend to include future residential use – for example, by including any undeveloped land, or land undergoing a change in use – for which planning permission to construct residential property has been obtained.
  • Build-to-rent is included within the proposals, although detail of how the tax is to be calculated needs to be considered. Profit will possibly be calculated by reference to the deemed development profit at the time of the first letting.
  • Subject to further thought, purpose-built student accommodation is likely to be included where a kitchen/bathroom are provided for exclusive use. Similarly, retirement homes are likely to be included, except where care and other services (such as cleaning and catering) are provided.
  • At this stage, hotels, residential care homes, hospitals and hospices, hostels, armed forces accommodation, boarding schools, monasteries/nunneries and prisons are excluded from scope. 

How will the RPDT be calculated?

There are two suggested models to assess profits:

Model 1: company-based approach

This would tax companies and groups of companies that undertake any amount of UK residential property development or support that work. The tax would be on the total profits, subject to the residential development activity being significant, to be determined by a de minims percentage of profit/turnover. This would mean that profits from commercial property development or profits on mixed developments would be subject to RPDT where those companies' activities include more than an insignificant amount of residential property development. 

Model 2: activity-based approach (focusing on taxing the residential property development activity only)

This model would tax companies and groups of companies that undertake any amount of UK residential property development or support that work. However, the tax would be on the profit in a company that relates to UK residential property development activities only. This model would require identification of residential property development activities, and an apportionment between residential and non-residential elements of a project, so that only the profits on the residential element would be taxed.

Joint ventures

Tax transparent joint venture entities such as partnerships will not themselves be within the charge, but any corporate investors in them will be subject to RPDT on their profit share. Where the joint venture vehicle is a company, the tax will be levied on both the company and its members (although credit will be available to prevent double taxation).

When will the RPDT come into force?

The plans are for the RPDT to be introduced from April 2022, with legislation presumably being included in the 2021-22 Finance Bill. 

What's next?

The government is seeking comments by 22 July 2021 on the proposed RPDT, including: 

  • the definition of residential property and development activity
  • the two potential models for calculating profits, and 
  • on the potential impacts of the tax, including on housing supply. 

Consultative meetings with government can also be arranged.

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Real Estate & Construction or Tax teams.

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