2021 Autumn Budget – brief takeaways for residential developers
The much-anticipated Autumn Budget was announced yesterday, with Rishi Sunak delivering some measures which will be of interest to residential property developers.
Firstly, the rumoured increase in the rates of capital gains tax did not materialise. This means landowners, promoters and housebuilders can breathe a sigh of relief that option agreements and promotion agreements which contain a tax suspension clause (which operates to suspend the agreement if the landowner’s effective tax rate increases beyond a certain level) will not be triggered, so any sites that obtain a planning permission will not be scuppered for this reason.
Secondly, the Chancellor confirmed the government’s plans to press ahead with the Residential Property Developers Tax (RPDT). This has been introduced to help fund the costs of removal of unsafe cladding. While it’s no surprise (there has already been a consultation on this), the Chancellor did confirm that it will apply to developers who have profits derived from UK residential property development above £25 million and will be at a rate of 4% on any profits above that allowance. The tax will take effect from 1 April 2022 and will be included in corporation tax returns. The government will be introducing legislation on this point in the near future and it predicts this will bring in an annual figure of between £200 million and £250 million over the first five years – or £1.125 billion in total.
Taken together with the planned increases in rates of corporation tax from April 2023 and other cost pressures facing housebuilders in the supply chain, we might see a cooling off in the net profit margins for larger developers in the next couple of years, although the housing market still remains buoyant.
Finally, after many years of what seemed like regular changes, there has been no adjustment to the rates or bands of SDLT, and there was nothing bringing the sale of land-rich SPV companies within the charge to SDLT, which is welcome.
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