From April 2022, residential property developer tax ("RDPT") will be charged at a rate of 4% of residential development profits which exceed a threshold of £25 million. The new profits-based tax is intended to only affect the larger and more profitable developers.
Despite initial fears, the new tax will not affect the build to rent sector, but the Government commented that it would not rule out further taxation in the future: for a Governemnt strapped for cash, the direction of travel is clear.
Public bodies are unlikely to bear the brunt of the tax directly, unless they have a substantial housebuilding programme managed by a subsidiary with properties ultimately marketed for sale. It is clear that certain types of development (including care homes, accommodation for emergency services and some student accommodation) will not be taxed: but the descriptions of developments outside the tax are narrowly drawn.
In a welcome move for the public sector, the updated legislation now contains a general exemption for not-for-profit housing companies, though care needs to be given not to fall foul of anti-avoidance provisions when relying wholly on this exemption.
The public sector will undoubtedly feel the impact indirectly, as property developers will have scope in a buoyant market to increase their returns to mitigate the impact of the new tax on their own profit margins. In turn, we can also expect to see increased rents for private sector housing tenants as the cost is passed on.
The clear message is that cost for local authorities of meeting their housing obligations is set to increase.
As well as additional cost, for those directly impacted, the new tax brings additional compliance and accounting burdens as relevant profits will need to be capable of being identified and apportioned. As the time to implementation of the tax is short, now is the time to consider its impacts and the strategies available to mitigate them.
If you would like to discuss how DWF can help you consider the impact of the new tax, any available relief and prepare for its implementation, please contact John Toon or your usual DWF contact.