Worry over timeframe for cladding tax

Worry over timeframe for cladding tax

The Chartered Institute of Taxation (CIOT) is warning about the challenging timeframe for the post-Grenfell disaster Residential Property Developer Tax (RPDT). It has led CIOT to call on the Government to indicate the rate range as soon as possible because it impacts residential development projects under negotiation now.

The Government said its priority is to bring an end to unsafe cladding and one policy proposal is a new tax on the residential property development sector – the Residential Property Developer Tax. The new tax is time-limited and will apply to the largest residential property developers in relation to the money they make from UK residential development. The new tax will be introduced in 2022 and seek to raise at least £2 billion over a decade, said the Government. The money raised will fund measures to address unsafe cladding.

 Marc Selby, Chair of CIOT’s Property Taxes Committee, said:

 “We understand fully the need to address unsafe cladding as a priority but we are worried about the lack of clarity on aspects of the new tax Residential Property Developer Tax so close to its implementation.

“We are concerned that the timescale for developing and implementing a wholly new Residential Property Developer Tax ready for April 2022 is very short, for both the sector to adjust and for HMRC to implement this successfully. The short timescale is of particular concern for developers in the build to rent sector who will be exposed to “dry” tax charges¹ on profits deemed to arise following completion of build to rent developments if the Government’s proposals for the new tax are implemented. Ideally this process should extend over a longer period to ensure effective implementation and readiness among companies. The limited timescale for development underlines the practical need to align Residential Property Developer Tax to existing legislation and corporation tax systems as far as possible.”

The CIOT said an important practical aspect is that software providers will have little time to design and build a Residential Property Developer Tax module once the design is finalised. HMRC will need to have new systems and guidance in place to administer and collect Residential Property Developer Tax by April 2022.

Marc Selby said:

“The rate of Residential Property Developer Tax is not yet announced pending decisions on design. We recognise that the design and rate are linked but a reasonably firm indication of the rate range as soon as possible would provide some level of certainty as it impacts residential development projects under negotiation currently.

“If a quarterly payment regime is adopted for Residential Property Developer Tax, a company or group with a 30 April year end could be due to make a quarterly payment as early as July 2021 but without knowing the rate or basis of charge.”

The CIOT urges the Treasury to adopt existing statutory or accounting definitions as far as possible in designing the new tax, in accordance with the Government’s objective of simplicity and the Office of Tax Simplification’s recommendations.