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Proposed property development tax rules should be tightened


Published: 19 Oct 2021 Update History

ICAEW’s Tax Faculty has raised concerns that draft legislation implementing a new tax on residential property developers could have wider implications than intended and that wording should be revisited.

After the Grenfell Tower fire, the government committed to a new tax on residential property development to help fund the removal of unsafe cladding on high-rise residential buildings. The new tax aims to raise at least £2bn over 10 years and will apply to developers with annual profits in excess of £25m.

Following an earlier consultation on its proposals, HM Treasury published draft legislation for the new residential property developer tax (RPDT) on 20 September asking for feedback ahead of its inclusion in Finance Bill 2021-22.

In response to the draft rules, published as ICAEW REP 99/21, ICAEW’s Tax Faculty has raised concerns that the current wording could see companies outside of the original intent subject to the tax.

The faculty points to clause 3(2), which lists examples of the types of activities that constitute property development for the purposes of the tax and warns that, when looked at individually, many of the activities listed, such as designing and marketing, do not constitute property development.

It concludes: “The way that the legislation is currently worded, we are concerned that companies carrying on these activities in isolation and without any other development activity could become subject to the tax.”.

While the faculty acknowledges that the legislation provides that only developers with an interest in the land concerned would be liable for the new tax, it remains concerned that the wording still broadens the scope of the legislation beyond what was intended.

It recommends that the legislation be amended to insert a definition of residential property development and clarify that if a company is carrying on such development activities, it would also be subject to tax on activities related to that development, as listed in clause 3(2).

ICAEW’s response also outlines concerns related to the clarity of clause 4(2), which defines the meaning of “interest in land”, and clause 14(1), which relates to the calculation of an RPDT-free allowance available to relevant joint venture companies where a body holding at least a 10% interest in such a company is not liable to RPDT.

Finally, the response examines the definition of a group of companies contained within the draft legislation, calling for an explanation of what constitutes a “75% subsidiary”.

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