Consultation begins on Government’s Residential Property Developer tax

Nick Potter, a Solicitor in Bishop and Sewell’s Commercial Property team.

The new tax would be introduced in 2022 and seek to raise at least £2 billion over a decade.

In bringing an end to unsafe cladding it has always been the expectation of the government that building owners and developers should step up to meet the cost of this work, without passing on costs to leaseholders, writes Nick Potter, Partner and Head of our Commercial Property team.

Where they have not, or where they no longer exist, the government has stepped in, providing over £5 billion to date for remediation of unsafe cladding on high-rise residential buildings, alongside wider support.

The consultation, which runs until 22 July, seeks views on the design, implementation and administration of the new tax and closes on 22 July 2021.

On 10 February 2021, the Secretary of State for Housing, Communities and Local Government set out a five-point plan to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market:

  • The government will pay for the removal of unsafe cladding for leaseholders in all residential buildings 18 metres (6 storeys) and over in England.
  • A generous finance scheme for leaseholders in lower rise, lower risk buildings – those between 11 and 18 metres (4 to 6 storeys) – to help pay for cladding removal where it is needed and ensure leaseholders never pay more than £50 a month towards the costs.
  • An industry levy and a new tax on residential developers, to ensure developers play their part and make a fair contribution.
  • A new building safety regime to ensure a tragedy like Grenfell never happens again.
  • Providing confidence to this part of the housing market including lenders and surveyors Industry paying its fair share.

To help pay for these interventions the government is introducing two revenue raising measures, as per point three above:

A new Gateway 2 levy, which will be applied when developers seek permission to develop certain high-rise buildings in England.

A new tax on the residential property development sector.

According to the government’s announcement, “The introduction of these measures is not intended to imply responsibility on behalf of the payers for historic construction defects in relation to cladding.

“The government recognises that many developers have had limited involvement in the development of high-rise buildings that require remediation and that many have taken independent steps to cover the costs of remediation where applicable.

“However, the largest residential developers are operating in a market that will benefit from the substantial amount of funding the government is providing to address building safety defects. The government has also helped support confidence and liquidity in the residential property market with its recent interventions on Stamp Duty Land Tax and the mortgage guarantee scheme.

“Therefore, given the significant costs associated with the removal of unsafe cladding, the government believes it is right to seek a fair contribution from the largest developers in the residential property development sector to help fund it.”

The new tax

The consultation is focused on only one of the two revenue raising measures: the new tax on the residential property development sector.

The Residential Property Developer Tax (“RPDT”) would be time-limited and apply to the largest residential property developers in relation to the money they make from UK residential development.

If you would like to discuss any of the points raised in this article, please do get in contact.  Nick Potter is a Solicitor in Bishop and Sewell’s Commercial Property team. Should you require any further advice or assistance, please contact us at [email protected] or call on +44 (0)20 7631 4141

The above is accurate as at 17 May 2021. The information above may be subject to change during these ever-changing times.

The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.