On 15th October 2021, the consultation period given by HM Treasury on the draft legislation and guidance for the proposed new “residential property developer tax” (RPDT) ends. HM Treasury guidance states that the purpose of the charge is to “ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs”. It follows the Housing Secretary’s announcement in February 2021 of plans to “bring an end to unsafe cladding with multi-billion pound intervention” with the aim that £2 billion would be raised through the RPDT over the next decade.

What are the key issues and potential implications for such a tax?

In brief, the proposed new RPDT would be charged on the profits of companies that undertake UK residential property development (RPD) activities and is intended to apply for accounting periods ending on or after 1 April 2022 (to be included in the 2022 Finance Bill). The tax would apply to profits above a determined annual allowance.

The tax will apply to companies which undertake RPD activities. It will be imposed from 1st April 2022. These RPD activities include anything that is done by a residential developer on or in connection with land in the UK for the purposes of the development of residential property- including dealing in residential property, seeking planning permission in relation to it, constructing or adapting it, and marketing or managing it.

A key point is that a developer must have (or have had) an interest in the land at some point for there to be RPT activities for the purposes of the tax. Residential property is defined as that which is designed or adapted for use as a dwelling and will include land for which planning permission has been (or is being) sought. However, a number of exclusions will apply for certain types of communal dwellings (such as care homes, hospitals, hotels, prisons, etc.).

Crucially, the rate of the tax and allowance amount are as yet unknown, but the tax will be calculated at the applicable rate on the company’s RPD profits so far as they exceed its allowance for the relevant accounting period.

With a degree of uncertainty surrounding the tax, there may be some residential developers who delay schemes until there is greater clarity.

However, there has been some good news. It has been announced that the government is to specifically exclude student and build-to-rent homes from the draft legislation. Student accommodation will not be included provided the students live there for at least 165 days a year. Also care homes which provide ‘residential accommodation with personal care’, for example to the elderly, will also be excluded.

No doubt further clarity will be given in the coming months, so watch this space…