On 29 April 2021, HM Treasury (HMT) launched a consultation on the policy design of a Residential Property Developer Tax (RPDT), to be introduced from 1 April 2022. The tax will raise £2bn over 10 years to help fund the remediation of unsafe cladding.
The RPDT will be paid by companies, or groups of companies, that generate ‘profits’ of more than £25m from the ‘development’ of ‘residential property’ situated in the UK. What constitutes ‘profit’, ‘development’ and ‘residential property’ is open to consultation, as is the treatment of profits from joint ventures. The consultation document does, however, suggest that profits are likely to include deemed profits from the development of residential property for rent (as opposed to sale), and that interest payments will not be deductible in calculating the profits that will be subject to the RPDT.
The consultation document recognises that maintaining the supply of affordable housing is a priority of the government, and seeks views on how the RPDT might impact the supply of affordable housing and how housing associations might be affected.
The good news for most housing associations is that the consultation suggests that charities, which will include charitable housing associations, will not be subject to the RPDT. It is therefore likely that only a small number of housing associations will be directly impacted by the RPDT. This would include groups that generate profits of more than £25m from the development of homes for sale or rent in non-charitable subsidiary entities or joint ventures.
However, more housing associations could be impacted by the tax, if the £25m profit threshold reduces or does not increase in line with inflation, or if the RPDT is extended beyond the anticipated 10-year period. Those groups that are close to the £25m threshold would inevitably be required to undertake complex analysis and calculations to establish the level of their ‘profits’ for the purpose of the RPDT, to satisfy themselves as to whether they are below the threshold.
The RPDT, if payable by the sector, would represent an additional cost to the sector that would inevitably leave less funds available for investment in affordable housing, which goes against government priorities. Given this, there would seem to be a very strong case for arguing that not-for-profit Registered Providers, and companies that are wholly owned by not-for-profit Registered Providers, should be exempt from the RPDT.
The NHF, supported by RSM, has held a number of discussions with its members, HMT and MHCLG, and will be making the case for an exemption for not-for-profit Registered Providers in its response to the consultation document. The argument will also be put forward that donations to charities should be deductible when calculating the ‘profits’ that are subject to the RPDT.
If HMT accepts that the social housing sector should be exempt from the scope of the RPDT, it is still quite possible that the RPDT will have knock-on consequences for Registered Providers. The likely commercial response to this additional tax by larger commercial housebuilders is difficult to predict. It is not inconceivable that, as a result of this additional cost, they might be prepared to pay less for development sites, increase the price of construction services of affordable housing provided under Section 106 arrangements, or to defer some housing developments as the end of the 10 year period of the charge draws nearer. It might also be the case that smaller housebuilders, who are not subject to the RPDT, become more competitive in terms of pricing.
It should also be noted that the government will also be introducing a new Gateway 2 levy, which will be applied when developers seek permission to develop certain high-rise buildings in England. This new levy will be subject to a separate consultation at a future date.
RSM is a leading provider of audit, tax and consulting services, with around 3,800 partners and staff in the UK. We're working with our tax advisors RSM to help shape government policy on taxation as it affects the sector and to keep housing associations informed of key issues.Find out more