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All You Need to Know About the Cladding Tax or the Residential Property Development Tax and Housing Associations

Recently the Housing Secretary, Robert Jenrick announced a new tax on the residential development sector. This tax is to be introduced in 2022 and will be used to help pay for the removal of combustible materials from the external wall systems of buildings. The tax will be applicable to the large property developers in the country and aims to raise a minimum of £2bn over a decade. This way the industry will be able to pay for past mistakes.

While it was announced that the largest property developers would be eligible for this tax, it is not clear which developers would be included in the tax. There is no clarity about the tax brackets or the amount a firm could be charged under this new tax. The housing secretary did, however, mention that they would consult on the policy design in due course. Currently, developers with profits over £25m will be the ones applicable for this new cladding tax.

The Housing Secretary also spoke about a levy being charged from developers seeking planning permission for high-rise buildings. The Gateway 2 levy will be implemented through the Building Safety Bill and will aim to protect SMEs from the mounting costs. It will only be applicable on developing certain high-rise buildings in England. The type of high-rise building that this levy would be applicable for has not been clarified yet by the government.

The Residential Property Developer Tax (RPDT) will apply from 1 April 2022 to the largest developers in the UK to contribute towards the rectifying of the cladding crisis that came to light after the Grenfell Tower fire.

The tax is being introduced to partially fund a £5bn package that aims to fully fund the cost of remediation work for replacing unsafe cladding for all leaseholders in residential buildings over 18 metres in height all over the country, according to the government.

Will Housing Associations pay Cladding Tax?

While the new cladding tax was initially meant to be levied from all the developers in the industry, the draft was amended to exclude non-profit organisations from the list following concerns of how this tax would affect the affordable housing sector. This means that housing associations will no longer be required to pay this tax. The updated legislation states, “Wholly-owned subsidiary companies of a non-profit housing company are also excluded from being treated as residential property developers for the purpose of the tax.”

For-profit organisations will, however, still be applicable to pay this Residential Property Development Tax (RPDT), despite all the lobbying efforts to stop it. The measures are expected to be confirmed at the Budget on 27 October, 2021.

The draft legislation for this new tax was published last month and is currently undergoing technical consultation until 15 October. Representatives of the housing sector were among the first to be briefed by the Treasury about the changes.