UK Residential Property Developer Tax: draft legislation has developers bearing cost of cladding crisis

Following public consultation earlier this year, draft legislation for a new residential property developer tax has been published by HM Treasury. The aim is to help fund the growing costs of cladding remediation works, though the details on exactly how that will be implemented are yet to be made clear. All profitable residential developers may be subject to the new tax, regardless of the nature of their residential portfolios, or whether they even have relevant cladding at their properties.

The government first proposed the residential property developer tax in an effort to respond to growing concerns over the costs for cladding repairs, and the potential burden on leaseholders, and details  have finally been set out in draft legislation published as part of a technical public consultation earlier this week.  Some fundamental features, including the rate of tax, and a company’s threshold level of residential property development profit before the tax becomes payable (the ‘allowance’), remain unconfirmed.  In addition it is understood a final policy decision is yet to be made on whether it will apply to build-to-rent developers.

Who will be liable for the tax?

The government appears to have cast the net widely, with the proposed tax to be applied to any residential property developers (RP Developers). This covers any company that is ‘within the charge to corporation tax’, and which ‘undertakes residential property development activities’ (‘RPD activities’).  Further provisions consider ‘related companies’ to deal with situations where the land interest is split from the development activity in the case of group companies and joint ventures, but companies simply acting as development contractors on third party land are outside the charge.

What constitutes residential property development activities?

To meet the criteria, such activities must be on, or in connection with, land in the UK in which the RP Developer has a qualifying land interest, and which forms or has formed part of its trading stock of a trade (as noted above, build-to-rent developers may apparently also be included however).  A non-exhaustive list has been included to assist in determining whether land is held for the purposes of, or in connection with, the development of residential property, and includes dealing, designing, constructing or adapting residential property, but also includes ‘seeking planning permission in relation to it’.

RP Developers with the relevant level of profits may therefore be caught by the tax where they have an interest in land even if a planning application has yet to be determined, has been granted but not yet implemented, or the residential development is in the course of construction.

Residential properties are defined to cover both buildings and associated land (including amenity land associated with the residential development), but exclude institutional uses, care homes and student accommodation.

How will the tax be applied?

RD Developers are to be subject to tax on trading profits specific to the RPD activities in relation to a chargeable accounting period, with the intention that it will start with periods ending on or after 1 April 2022, with provisions for apportionment where an accounting period straddles this date.

The draft legislation includes the calculation mechanics and provisions on reliefs (including group relief) and restrictions.

The government confirms that the intention of the tax is ‘ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs’. It is understood this will be applied towards works to be governed by the Fire Safety Act 2021 and the Building Safety Bill.

Next steps

There is a chance to comment on the details in the draft legislation up to 15 October and the government has produced explanatory notes. Here is a link to both documents.

As part of the Autumn Budget on 27 October, the Chancellor will set out the final details, including the rate of tax and the specific allowances, and this is to be included in the 2021-2022 Finance Bill.



Authored by Hannah Quarterman and Robert Gowing.


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