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Some housing associations could be ‘in scope’ of new cladding tax, lawyers warn

By 24/09/2021No Comments

Housing associations that own development companies and for-profit providers could be subject to the new levy on development being introduced by the government to help pay for cladding remediation, say lawyers.

Picture: Getty

Picture: Getty


Housing associations that own development companies and for-profit providers could be subject to the new cladding levy on development #UKhousing

While most charitable housing associations will be exempt from the new tax, which was announced by the government in February this year, lawyers have told Inside Housing that some social landlords could be affected and that this could have an impact on the overall delivery of affordable housing.

Earlier this week the government published draft legislation for the Residential Property Developer Tax, which is expected to raise £2bn over the next decade to help pay for the remediation of unsafe buildings.

Coming into effect in April next year, the tax will be applied against the profits of developers above a certain fixed allowance.

It is not stated in the draft legislation what the rate and allowance will be, but ministers have previously said that the tax will apply to firms with an annual profit over £25m.

Under the draft legislation the levy will apply only to companies that are liable to pay corporation tax.

David Bullock, a solicitor in the real estate and projects team at Devonshires, said this clause will “exempt most charitable housing associations”, but warned that it could mean some landlords could remain liable, such as “for-profit registered providers or, in some circumstances, charitable housing associations who make profits that are not used for charitable purposes”.

Michael Surry, partner at Trowers & Hamlins, warned that a social housing provider that owns a large developer company as part of its group “may be within scope” of the levy.

“The government was open to exempting development companies who gift-aid profits to a charity but this is missing from the draft legislation,” he explained.

The levy only applies to profits on trading, meaning any liable housing association would only have to pay tax on profits from market-sale or shared ownership properties.

For example, this means a for-profit provider that only develops homes for rent and keeps those homes within the same entity would not be subject to any tax.

However, Mr Bullock warned that the levy could still impact the number of affordable homes being delivered.

He said: “Given the recent rise in the number of pension and equity funds investing in for-profit housing associations, we will need to see how much this affects supply of housing.

“The for-profit RPs have been delivering housing at a faster rate than ever and how this tax is perceived by their investors will largely depend on the rates and allowances available. The last thing we want to see is housing supply slow down.

“If the intention is for housing associations to be excluded from the tax, then this should be made explicit for the avoidance of doubt.”

Mr Surry said it was “too early to speculate” if there could be some unintended consequences to the legislation, but said the increased costs for residential developers “will reduce the viability of some developments, which in turn could mean fewer affordable housing units being delivered”.

The draft legislation confirmed that there will be no exemptions for developments that are already in progress.

“Developers are in the unsatisfactory position of facing an unexpected liability and still do not know how much that will be. Hopefully the government will announce the rate and the allowance at the Autumn Budget on 27 October,” Mr Surry said.

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