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Details on the proposed Residential Property Developer Tax announced

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The Government has recently released its consultation paper on the Residential Property Developer Tax (RPDT) to seek views on the proposed design of the tax.

The Government first announced in February that it would introduce a new residential property developer tax as part of its Building Safety Package. This tax will sit alongside a new Gateway 2 levy which will be applied when developers seek permission to develop certain high-rise buildings in England.

The RPDT aims to raise £2bn over a decade from 2022 to contribute to the Government cladding remediation work.

It is aimed at only the largest property developers and so it is proposed that the tax will only apply to the profits of a company or group that exceed an annual allowance of £25m.

The rate of tax is yet to be decided but it will be a fixed rate for the period and set so that it does not disproportionally impact housing supply.

Comments are being sought on the scope of profits that it will apply to but the proposal notes that the tax will extend to profits on undeveloped land or commercial property where planning permission for residential conversion has been obtained.

Hotels, care homes, prisons, charitable housing associations will be excluded but comments are being sought on how the tax will apply to student accommodation and retirement schemes that offer less care functions.

The tax is one of the government’s measures to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market.

The proposals are to tax the profits from residential development which adds significant complexities to the calculation and design of the tax. Amongst other aspects, views are being sought on how profits should be identified across groups with mixed activities or joint venture arrangements, what costs/losses will be deducted from these profits and how to impute profits from Build to Rent developments.

To prevent distortions of the tax base from differing funding arrangements, it is proposed that interest and other funding costs would not be deductible for RPDT purposes.

It strikes us that the tax is already appearing too complex for the amount of tax intended to be raised and costs of complying and enforcing may well become onerous for both taxpayer and HMRC.

The consultation closes for comment on 22 July 2021. You can read the full detail here.

If you would like to input into the consultation you can respond directly with your own views or you can pass them to BHP to coordinate a response.