After the public consultation which happened earlier this year, draft legislation for a new residential property developer tax has been published by HM Treasury. The target is to help fund the growing costs of cladding renovation works. However the details on how exactly that will be put in place are yet to be made clear. Regardless of the nature of their residential portfolios, all residential developers may be subject to the new tax.
Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.
How will residential property developers be affected by the proposed taxation?
Initially, the UK government proposed the residential property developer tax in an effort to respond to growing concerns over the costs for cladding repairs, and the potential burden on leaseholders, and details have finally been set out in draft legislation published as part of a technical public consultation earlier this week. Some fundamental features, including the rate of tax, and a company’s threshold level of residential property development profit before the tax becomes payable (the ‘allowance’), remain unconfirmed.
In addition it is understood a final policy decision is yet to be made on whether it will apply to build-to-rent developers.
Who will be liable for the property developer tax?
The government appears to have cast the net widely, with the proposed tax to be applied to any residential property developers (RP Developers). This covers any company that is ‘within the charge to corporation tax’, and which ‘undertakes residential property development activities’ (‘RPD activities’). Further provisions consider ‘related companies’ to deal with situations where the land interest is split from the development activity in the case of group companies and joint ventures, but companies simply acting as development contractors on third party land are outside the charge.
What are residential property development activities?
To meet this criteria, such activities must be on, or in connection with, land in the UK in which the RP Developer has a qualifying land interest, and which forms or has formed part of its trading stock of a trade A non-exhaustive list has been included to assist in determining whether land is held for the purposes of, or in connection with, the development of residential property, and includes dealing, designing, constructing or adapting residential property, but also includes ‘seeking planning permission in relation to it’.
RP developers with the relevant level of profits may therefore be caught by the tax where they have an interest in land even if a planning application has yet to be determined, has been granted but not yet implemented, or the residential development is in the course of construction.
How will the tax be applied?
RD developers are to be subject to tax on trading profits specific to the RPD activities in relation to a chargeable accounting period, with the intention that it will start with periods ending on or after 1 April 2022, with provisions for apportionment where an accounting period straddles this date.
However, the government confirms that the intention of the tax is ‘ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs’. It is understood this will be applied towards works to be governed by the Fire Safety Act 2021 and the Building Safety Bill.
The next step?
The UK government has provided explanatory notes and there is a chance to comment on the details in the draft until 15 October 2021. The chancellor will eventually set out the final details in the autumn budget. It will include the rate of tax and the specific allowances.
Expert Tax Disputes Lawyers
If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.
Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.
Want legal advice from Tax Solicitors on your case?
Our simple enquiry form goes immediately to our tax litigators in Middle Temple, London. Call us on +442071830529 from 9am-6pm.
Please note that if you have been warned about your file being passed to HMRC’s Solicitor’s Office or have been served a statutory demand or winding-up petition do not delay in taking legal advice. Your matter can be handled more effectively the sooner you contact us.