The Chancellor of the Exchequer, Rishi Sunak, delivered his third Budget this week. Many of his announcements confirmed previously announced measures, but added crucial detail, such as the rate and allowance applying to the new Residential Property Developer Tax (RPDT).
Our Tax team has produced a briefing which focuses on the new announcements from the Budget and those which add significant detail to already-announced measures. For a copy of this briefing, please contact us. Below, we set out the measures that are relevant to real estate, namely the RPDT, business rates and the Online Sales Tax.
Residential Property Developer Tax
As announced in February 2021, the Government will introduce a new tax from 1 April 2022 on the profits that certain companies and corporate groups derive from UK residential property development, with the stated aim of ensuring that the largest developers make a fair contribution to help pay for building safety remediation work.
It was announced in the Budget that the tax will be charged at 4% on profits exceeding an annual group-wide allowance of £25 million. The calculation of profits charged to the tax will be based on the existing rules for corporation tax (with certain adjustments, most notably, there will be no deduction for finance costs), and the tax will be reported and paid using the corporation tax return and administrative framework. The rules relating to joint ventures appear to have been simplified, but still with the aim of ensuring that it isn’t possible to take the benefit of multiple annual allowances through investing in joint ventures; a joint venture company would have its own annual allowance, with material interest holders in that joint venture company (effectively 10% plus shareholders) being allocated a proportion of the JV profits when determining (and in effect reducing) their own annual allowance.
Following the increase in the corporation tax rate to 25% from 1 April 2023, developers subject to the RPDT will effectively pay a combined headline rate of tax of 29% on their profits which are within scope of the tax.
The Government has also published its response to the April 2021 consultation on the new tax. Although the Government remains of the view that the tax should be time-limited and that it should seek to raise at least £2 billion over a decade, a “sunset clause”, which would repeal the tax at a fixed point, will not be included in the legislation. In addition, although the Government currently accepts that build-to-rent activity will be outside the scope of the tax, this decision will be kept “under review”.
For our previous blog post on the RPDT technical consultation, see here.
Business rates and Online Sales Tax
The Government has published the final conclusions of its review of business rates. There is no wholesale reform, but a number of changes will be introduced, with the aim of making the system fairer, more responsive and more supportive of investment. These include a temporary 50% relief (capped at £110,000) for eligible retail, hospitality and leisure properties for 2022/23; a 100% improvement relief, providing 12 months’ relief from higher business rates for occupiers where eligible improvements to an existing property increase the rateable value, with effect from 2023; exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, applying from April 2023 until March 2035; and an increase in the frequency of business rates revaluations from 2023.
The Government will also continue to explore the possible introduction of a UK-wide Online Sales Tax, the revenue from which would be used to reduce business rates for retailers with properties in England. A consultation on this potential new tax will be published “shortly”.
A link to the Government’s Autumn Budget 2021 website and full Government documentation can be found here.
For more information, please contact: