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United Kingdom | Publication | June 2022
The Building Safety Act 2022 (BSA) is now on the statute books. The wider series of measures introduced within the BSA framework will apply across the built environment. These measures extend to taxation and in doing so, provide funding for certain elements of the overall scheme.
We previously provided an update on the issues surrounding the cladding crisis. In this new alert, we will take a look at two particular developments: the new UK Residential Property Developer Tax (RPDT) and the Building Safety Levy (BSL)
The RPDT was introduced as part of a package to fund the cost of remediating cladding issues. It came into force on 1 April 2022 and is expected to run for a 10-year period. Within UK residential development activities, annual trading profits in excess of £25 million per group are subject to 4% RPDT charge. This applies only to trading profits and does not include chargeable gains from land held for investment or to income from build-to-let activities.
The RPDT applies to residential property developers, which are defined as: companies or groups of companies which carry on residential property development activities, or which alone or together with another group company, have a substantial interest (10% ordinary capital test) in a joint venture which carries these on. This £25 million limit forms an allowance (reduced pro rata for accounting periods of less than a year) with the ability to apportion this allowance across corporate groups.
The regime applies to the development of land or property held as trading stock by a developer or a related entity. Residential property development activities include dealing, designing, seeking planning permission, constructing or adapting, marketing and managing. These activities can continue to generate profits subject to the RPDT after the residential property developer ceases to hold an interest in the land.
The concept of ‘residential’ encompasses buildings designed or adapted for use as a dwelling and any associated land. It excludes certain types of buildings designed for communal use, typically those intended to accommodate specific classes of residents such as student accommodation, prisons, care homes, accommodation for members of the armed forces and children’s homes.
There is an exclusion for non-profit housing companies, defined in section 34(4) of the Finance Act 2022.
The RPDT will be collected alongside corporation tax in the ordinary course.
The UK Government is introducing a levy on developers of residential buildings in England. Like the RPDT, the BSL is designed to raise revenue for replacement of defective cladding, in addition to remediating any other historical building safety defects. The BSL is expected to be finalised in 2023 with the introduction of the ‘Gateway 2’ stage of the new building safety regime.
Last year, we wrote about the proposed new Gateway regime and the role of the new Building Safety Regulator. Details of the exact scope of the BSL will be confirmed when the secondary legislation is published.
The BSL was initially limited in scope to ‘higher risk’ buildings identified by the new building safety regime. The Government has subsequently extended the potential scope to all residential and mixed use buildings and has stated that this expansion will raise an estimated additional £3 billion for cladding remediation. It has been anticipated that there may be targeted exclusions to the BSL but these have not yet been confirmed.
The construction of buildings within scope of the BSL will only commence once the BSL has been paid. This was initially identified as BSL payment being required before building control approval could be obtained, as part of the Gateway 2 process. The Government has extended this to allow the imposition of a levy at the point of initial notices, amendment notices and public bodies’ notices, in addition to being at the time of applications for building control approval.
The BSL rates are yet to be confirmed. Two proposals raised at the time of the consultation suggest either a charge per square metre of the internal floor size, or alternatively a flat fee per residential unit.
Those affected by the new measures need to be on top of the changes, from the newly incorporated laws to those still in the pipeline. In a short period of time, we have seen the introduction of two new taxing measures, the proceeds of which will be used to fund cladding and building remediation work. The RPDT is now in place; the BSL is around the corner.
We will report back on further developments as they unfold.
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