Royaume-Uni & Europe
HM Treasury has this week published draft legislation and guidance for consultation on a proposed new “residential property developer tax, to be charged on profits of companies carrying out residential property development”. The consultation ends on 15 October 2021 with the aim that draft legislation will be included in the 2022 Finance Bill. This article looks at some of the key aspects of the proposed new tax and the companies and activities that are likely to be affected.
The proposed new residential property developer tax (“RPDT”) would be charged on the profits of companies that undertake UK residential property development activities and is intended to apply for accounting periods ending on or after 1 April 2022 (with an apportionment for accounting periods which straddle this date). The tax would apply to profits above a determined annual allowance.
The tax will apply to companies within the charge to corporation tax which undertake residential property development (“RPD”) activities.
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. A non-exhaustive list of activities is set out which includes 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 (similar to the SDLT regime) and will include land for which planning permission has been (or is being) sought, although a number of exclusions will apply for certain types of communal dwellings (such as care homes, hospitals, hotels, prisons, etc.).
The rate of the tax and allowance amount are as yet unknown (although a profits allowance figure of £25m was mentioned in the April 2021 consultation), 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.
RPD profits for these purposes will be calculated in accordance with a formula, essentially adding together a company’s ‘adjusted trading profits’ (or losses, as the case may be) and its joint venture profits (or losses) (so far as in each case they relate to its RPD activities), and then deducting allowable loss relief, group relief and carried forward group relief.
Collection and management of the tax will be the responsibility of HMRC, and will operate along the same principles as corporation tax (with some modifications and reporting requirements), although the RPDT will be a separate tax. Residential developer companies (with certain exemptions) will be required to include in their company tax returns a statement of RPD profits, losses and reliefs. Furthermore, RPDT will be ignored and no allowance made when calculating income tax or corporation tax.
The 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 Feb 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.
Already, the BPF has issued a press release calling on the government to specifically exclude build-to-rent homes from the draft legislation finding that the build-to-rent sector “has ensured that tenants are both safe and protected from any financial impact” and that build-to-rent investor-developers remain fully liable for remediation and maintenance costs and do not pass those on to tenants.
No doubt more views will follow, but with the rate of the tax and the amount of the allowance threshold still unknown, there must be a strong possibility that such uncertainty will cause some residential developers to delay schemes until greater clarity around project returns can be established.
The technical consultation on the draft legislation published by HM Treasury (which can be found here) closes on 15 October 2021 and questions or comments about the proposed legislation can be directed to RPDT.email@example.com.
It is expected that the final design of the tax, including the rate of the tax, will be announced at the Autumn Budget on 27 October.