It seems fitting that my first blog post of the new financial year* is about tax.
On 29 April, the Treasury launched a consultation over the design of a new residential property developer tax intended to raise money to fund the removal and remediation of unsafe cladding.
The tax was announced back in February, as part of the government's ongoing response to the cladding crisis, but this is the first indication we have been given over how it is intended to work.
Now, I am not a tax lawyer and, as such, am not going to get into the technical details of the proposals - but the consultation does give some interesting hints as to central government thinking, some of which may find its way into the planning reforms promised later in the year.**
- Firstly, the tax is intended to be both time-limited and hypothecated. The aim is to raise cumulative revenue of at least £2 billion over a ten year period, which is to be used solely to offset the cost of fixing dangerous cladding. It will sit alongside capital gains tax, the new 'tall buildings' levy which also formed part of the February announcement and, of course, CIL, s.106 obligations and other costs of development.
- It is intended to be a tax on the profits of residential development companies - but only where those profits exceed £25 million. The consultation discusses arrangements for group companies, joint ventures and mixed development companies in quite some detail, and these will need to be looked at carefully to understand precisely how many developers are likely to fall within the scope of the new tax;
- There are also detailed proposals on the definition of residential development to be used, but it seems likely that most forms of residential development will fall within the scope of tax, including both greenfield and brownfield schemes and residential conversions;
- Interestingly, the Treasury is looking to include profits arising from affordable housing within the scope of the tax, along with purpose-built student accommodation and build to rent schemes;
- Hotels, residential institutions (such as prisons, residential homes, boarding schools, hospitals and hospices) and supported housing are not intended to be within the scope of the tax; and
- The position on specialist housing for the elderly is somewhat more nuanced. With the Treasury seeming to want to draw a distinction between different types of housing depending on the type and form of the scheme being provided. The consultation states " Where care and allied service functions such as catering and cleaning are provided as an integral part of a communal dwelling, as in a residential home, then the government intends profits from such developments to be out of scope of the RPDT. Where this is not the case, for example retirement communities that offer accommodation and communal facilities for older persons that are not reliant on care provision, the government considers that profits from development should fall within scope of the tax." Whilst this would seem to be a clear cut position in respect of traditional care homes, at one end of the market, and specialist housing without any specific care provision, at the other, it does leave a large grey area in the middle - which is where most retirement communities and extra-care type models tend to operate.
The consultation runs until 22 July, with the tax due to be included in a finance bill later in the year. It is an important one, so I would urge anyone involved in residential development to take a look at it. The full consultation document can be found here.
The other big news of the Bank Holiday Weekend, came courtesy of press briefings to the Times, The Telegraph and the Financial Times - all of whom published stories indicating that wide-spread planning reform will be announced in the Queen's Speech on 11 May*!. Planning Resource has published an excellent summary of these reports, which seem to indicate that:
- At least some form of Zonal Planning will be forthcoming;
- It will be intended to ensure that the 300,000 homes a year target is met; and
- there is likely to be a continued focus on simplifying planning rules.
It is, however, unlikely that the Queen's Speech will give us much in the way of detail on the technical details of the forthcoming legislation. For that, we will need to wait for either the draft bill or additional technical consultations on aspects of the legislation to emerge over the summer.
- The Queen's Speech is said to contain 25 separate bills covering everything from state aid and social care reform to financial measures (including tax changes and the economic recovery) and the 'levelling up' agenda; and
- We know from recent, painful, experience that parliamentary time is at a premium at the moment.
The more cynical amongst us may suspect that we could be in for quite a long wait indeed ...
* Happy New Year, Everyone! (well, at least everyone who also has a 30th April Financial Year End)
** but more on that in a couple paragraphs time....
*! Which has just become the bookies' favourite date for my second child to make her appearance.
Ministers announced the new tax in Februaryas part of a £5 billion package of remediation of unsafe cladding on high-rise residential buildings, alongside wider support. The government believes it is right that residential property developers, who will benefit from the restoration of confidence to the housing market, should help fund the significant costs associated with the removal of unsafe cladding. Housing Secretary Rt Hon Robert Jenrick MP said: We’re making the biggest improvements to building safety standards in a generation, investing over £5 billion helping to protect leaseholders from the cost of replacing unsafe cladding on their homes and ensuring industry is held to account for the wrongs of the past. This tax will strike the right balance between developers making a contribution and ensuring fairness for the taxpayer.