Housing Associations and RPDT

Earlier this year, then Housing Secretary Robert Jenrick announced plans to tackle a number of issues that had arisen in the aftermath of the Grenfell fire tragedy.

A number of these plans focussed on how to fund the replacement of cladding on those buildings that were deemed to be unsafe. The plans made a number of pledges which included a £3.5bn package towards the removal of unsafe cladding from high rise buildings, plans for a ‘developer levy’ and a new tax on the UK’s residential development property sector.

The new tax on developers was described as a Residential Property Developer Tax (RPDT) and a government consultation was held in April of this year with the intention of obtaining opinions on the design of the policy. Exactly how the policy would work was not made clear, but the intention was that £2bn would be raised from the tax to help fund the cost to the government of removing unsafe cladding from those buildings that qualified. The tax would be payable by those developers carrying out residential developments who made a profit of more than £25m per year. The issue for housing associations, particularly those with a large group structure, and wholly owned subsidiaries that carry out the development of open market units with the purpose of reinvesting profits back into affordable housing, was that these profits would fall within the RPDT. In addition, housing associations whose private development arms entered into joint venture arrangements with house-builders would also be hit by this tax.

The tax would be a double hit for the affordable housing sector with the largest group of housing associations (the G15) already expecting to spend around £3bn on building safety work over the next decade. A further government tax would be another obstacle to those developing housing associations looking to increase the much needed supply of affordable housing in the market. With such a chronic lack of affordable housing supply, and housing associations making a concerted effort already to deal with cladding issues, in addition to modernising and maintaining outdated stock, an additional tax could have had a significant impact on their ability to develop affordable housing.

However, the not for profit affordable housing sector breathed a sigh of relief following the government’s updated note on the legislation this month, which revealed that housing associations and their wholly owned subsidiaries would be exempt from the RPDT. The exemption will include all residential development activities including where profits are made and reinvested back into the parent company to fund further affordable housing. On the flip side, it is not believed that for profit housing associations will benefit from the same relief. It is also proposed that not for profit housing associations who form part of a joint venture will also be exempt on its share of the profits.

With a new housing secretary in place and much legislation and policy still pending from his predecessor it is understandable that many in the sector will be cautious about what is actually going to make it through to legislation. The RPDT is intended to apply from April 2022 so we shall know soon enough.

To discuss the implications of the Residential Property Developer Tax on the social housing sector, please contact Lee Stone or another member of the Birketts’ Social Housing Team.