The New Residential Property Developer Tax

• Published date: 19 May 2021
• Subject Matter: Real Estate and Construction, Tax, Real Estate, Tax Authorities
• Law Firm: Gowling WLG
• Author: Mr Lee Nuttall

The residential property developer tax ('RPDT') is proposed to be a new super-tax targeted specifically at the residential property sector. It is an interesting experiment in time-limited tax-raising. Funds generated by RPDT are to be hypothecated to reimburse Government for monies it has expended (and will continue to expend) on remediating unsafe cladding following the tragedy of Grenfell Tower.

At a policy level, the Government believes that the cost of remediating unsafe cladding should not sit with taxpayers generally (i.e. the costs should not be met from general tax revenue), but that the cost should sit with those companies that undertake residential property development on their own behalf. It does not matter, then, that those who actually installed unsafe cladding are not caught by the new RPDT; or that those who would be caught by RPDT have already spent money on replacing unsafe cladding. If it is of any consolation, the Government confirms that the introduction of RPDT "is not intended to imply responsibility on behalf of the payers for historical construction defects in relation to cladding".

RPDT will be charged in respect of accounting periods ending on or after 1 April 2022 for a period of 10 years. The aim is to raise '2 billion from RPDT over that period, and the 10 year duration will be extended if necessary to ensure '2 billion is raised from it. As the tax is charged on profits, RPDT is proportionate to economic returns - with (it is asserted) minimum market distortion.

RPDT is more properly a tax on residential property development. The target of the tax is any company developing residential property for sale or rent. RPDT will clearly capture profits made by house-builder companies. It will also capture investment companies who (to enhance returns) take on development risk for their residential development projects.

HM Treasury is currently consulting on the detail of policy design. This insight sets out the headlines of the proposals. Many questions are left unanswered by the document.

Some questions are left unanswered purposely (e.g., the rate of RPDT) and some through omissions or absence of detail in the document itself. It would have been helpful, for example, to say that a pension fund developing a Build-to-Rent scheme will be exempt from RPDT, as appears to be the intention; to say whether a liability to RPDT would be an allowable deduction for corporation tax purposes; and to confirm whether a development that completes shortly after 1 April 2022 would be caught on the entirety of the profit or time apportioned from the commencement date.

Many more questions are left unanswered...