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Residential Property Developer Tax under the Autumn Budget 2021

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Earlier this week, the Autumn Budget revealed eagerly awaited further details of the proposed Residential Property Developer Tax (“RPDT”).

First, by way of background, what is the intention behind the tax? The events of the night of 14th June 2017 at Grenfell Tower uncovered the issue of unsafe cladding covering high rise buildings in the most horrific way imaginable. Following the tragedy, The Fire Safety Act was introduced, allowing for a total fund of £5.1billion to pay for the Government’s works to remediate unsafe cladding wrapping high rise buildings. RPDT is being introduced as part of the Government’s Building Safety Package to raise this fund; aimed at improving the safety of cladding, providing reassurance to residents and increasing confidence in the housing market. The Government hopes that RPDT will raise at least £2billion over the next decade.

RPDT will be introduced on 1st April 2022 and is intended to apply to companies or group companies which undertake residential property development in the UK, said to be the market that will benefit most from the Government-funded remediation works. The tax is intended to apply only to companies, or group companies, which undertake ‘residential property development activities’ and generate profits in excess of a group-wide annual threshold. ‘Residential property development activities’ encompass activities of a residential developer on or in connection with UK land for the purposes of residential development, including seeking planning permission, constructing, adapting and marketing property which the company has, or has had, an interest in at some point. Third party construction companies contracted to develop residential property which have had no interest in the property are therefore excluded. ‘Residential property’ includes buildings which are designed or adapted for use as a dwelling, and also includes land on which planning permission is being sought for residential development, but is to exclude specific types of communal property such as prisons, nunneries, care homes and certain student accommodation.

The Budget confirmed the rate of the tax will be 4% on profits arising from residential property development activities which exceed an annual allowance of £25 million. Certain reliefs will be available as deductions against profits, and charitable profits of charitable companies are excluded. RPDT reporting and payment deadlines are set to be aligned with the corporation tax structure, which will hopefully minimise the training impact on businesses affected. The Government reports that HMRC anticipate investing up to £8.65 million to update its systems to enable reporting and administration of RPDT.

We may now see an increase in commencement of development schemes: The long-awaited announcement of the rate of RPDT and amount of the annual allowance has put to bed previous uncertainty around RPDT which in recent times may have swayed some residential developers to delay schemes until details were confirmed and they had a firmer idea of the cost of RPDT and its impact on their predicted financial returns.

This blog is intended for general information only and does not constitute legal advice. Should you wish to speak to our team for a quote for legal advice, please call Feldon Dunsmore Solicitors on 01926 954694