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24th November, 2021 by Deborah Caldwell
In the Autumn Budget the Chancellor confirmed that a new Residential Property Developer Tax (‘RPDT’) will be levied on developers of residential property in the UK with profits over £25 million at a rate of 4%.
RPDT will apply from 1 April 2022 and is expected to contribute a minimum of £2 billion over a decade towards government funding for the removal of unsafe cladding from certain high-risk buildings. The announcement has not been met with unbridled enthusiasm by leaseholders: this is not new funding and leaseholders still have many concerns about building safety and remediation costs that are not covered by public funding. The current total pot of £5 billion does not provide anything like the comprehensive remediation fund recommended by the House of Commons Select Committee earlier this year. The Committee estimates the figure at closer to £15 billion.
Overlap with Gateway 2 Levy
Consultees raised concerns over the scope and potential overlap between RPDT and the proposed Building Safety Levy (also known as the Gateway 2 Levy). We are awaiting the government’s full consultation response and details on this additional levy but it is clear that the Treasury sees the two taxes as distinct: one is a tax on profits, and the other a single, one-off payment charged on the development of residential buildings.
Impact on housing delivery
The government claims that any impact on house prices and transactions will be negligible, as new builds account for a small share of overall market transactions. Some developers disagree although the majority of house builders may avoid paying the new tax: only 31 developers made enough profit in 2019, the last time the building industry was not disrupted by the pandemic.
However, since profits will be calculated without deduction for finance costs, the £25 million threshold might catch more companies than previously forecast, despite the government’s stated intention to capture only the ‘largest’ residential property developers in the UK.
There were no new funding announcements for cladding remediation in the Autumn Budget: the £5 billion figure relates to funding that has already been allocated in a piecemeal fashion since 2019. And although RPDT will apply to all residential development within the scope of the tax, public funding for cladding replacement is still restricted to high-rise buildings (18 metres and above).
In February this year the government announced that owners of flats in blocks between 11 and 18 metres would be eligible to apply for a £50 a month loan. Details of the loans scheme have never been published and last week Mr Gove, reflecting the views of leaseholders, told the Housing, Communities and Local Government Committee that the scheme was on hold because -
“I’m still unhappy with the principle of leaseholders having to pay at all, no matter how effective a scheme might be in capping their costs or not hitting them too hard at any one time. My question is why do they have to pay at all?”
Affected leaseholders have been asking this question since Grenfell Tower burned down. Mr Gove will be bringing forward proposals to replace the loan scheme in the coming weeks.
If you would like any further information, please contact a member of the Commercial Property team.
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