27 May 2021
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.
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).
There are two suggested models to assess profits:
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.
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.
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).
The plans are for the RPDT to be introduced from April 2022, with legislation presumably being included in the 2021-22 Finance Bill.
The government is seeking comments by 22 July 2021 on the proposed RPDT, including:
Consultative meetings with government can also be arranged.
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.