The residential property sector has been hit by a number of challenges in recent years and particularly following the pandemic tax rises appear more and more likely. With the number of changes that are coming in over the next few years it is vital to make sure you are
on top of your business’s tax planning.

What is the new proposed tax?
The government has published a draft legislation on a new proposed time limited tax to be charged on the profits of companies carrying out residential property development. The purpose of this tax is to help pay for remediation works required on unsafe cladding on residential flats.

The rate of the tax and the allowance are yet to be announced so any planning at this stage will be tricky. It is designed to target the big hitters, an allowance figure of £25m has been mentioned but is yet to be confirmed. We can expect further details to be announced during the Autumn Budget with the tax to be introduced in April 2022.

Consultation on this tax will run until October 15th, you can make your voice heard here.

Who does it affect and what will the impacts be?
It’s important to note that this tax will apply to a wide scope of assets and activities. The nature of property development also means that profits can end up stacked in lump sums rather than a steady flow. This means more developments could be included than initially expected. Accurate forecasting of your cash flow can alert you if this seems likely.

It’s tough to make predictions about how this tax will impact the sector although some early speculation has suggested that the uncertainty this tax causes may delay schemes. I think this is unlikely as delays of this nature cause losses in other areas. It’s possible that the bigger companies may start to reject work that they consider too small which could open up opportunities for developers looking to scale up.

How can businesses prepare?
With a number of increases on the horizon from corporation tax increasing in 2023, dividend tax and a likely increase in capital gains tax it’s more important than ever for property developers to streamline their tax affairs.

It’s important that you ensure you are claiming on all reliefs available to you. Many are still underutilised as businesses don’t believe that they will qualify. I have found that most businesses qualify somewhere and these reliefs can be key to unlocking cash.

Key reliefs for property which should be reviewed on each site owned, or when potential sites are being considered are:

Research & Development
Land remediation relief
Capital allowances

Tax planning has never been more important and I’d really recommend that you make sure you are maximising all reliefs available.

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