The Government is currently consulting on a new tax which would apply to residential developers with profits of in excess of £25 million per year. The consultation will run until 22 July 2021. This tax is intended to be a revenue stream towards the cost of remediation of unsafe cladding on high-rise multi-occupancy residential buildings.

Who will pay it?

The tax is likely to apply to stand alone companies and groups which carry out residential development and generate profits of in excess of £25 million. It is expected that the definition of “residential development” will be similar to that which is applied to the payment of stamp duty, but will also include any undeveloped land, or land undergoing a change of use, for which planning permission to construct residential development has been obtained.

What is classed as residential development?

The definition of residential development is very wide and seems to intend on including:-

“a house or flat that is considered as a single residence, generally together with the grounds and garden or any other land intended for the benefit of the dwelling.”

The definition will include all stages of the development process – including land acquisition, pre planning advice, design, planning application, construction and marketing. If land or buildings are under development or undergoing a change of use, this definition will also extend to:-

  • Any building that is suitable for use as a dwelling, where it is not so used at the relevant time
  • Any existing building that is being adapted, restored to, or marketed for, domestic use
  • Undeveloped land where a residential building is being or would be constructed on it
  • Undeveloped land or land undergoing a change in use, for which planning permission to construct residential property has been obtained.

There will be some exclusions, but these are limited to hotels, residential homes for the elderly, support accommodation, armed forces accommodation, boarding schools, monasteries/nunneries and prisons. A decision has yet to be made on student housing or affordable housing.

What profits would be subject to the tax?

There are two models being discussed:-

Model 1

This is referred to in the consultation papers as ‘the company based’ approach. The tax would apply to standalone companies or groups that undertake any amount of UK residential development or support that work.

A significance test would be applied – if the residential development activity is insignificant then that company’s profits would not be included. This could be calculated by de minimis percentage.

If the company meet whatever threshold is set, then all of those profits would be subject to the tax.

Model 2

This is referred to as the ‘activity based’ approach. The tax would again apply to standalone companies or groups that undertake any amount of UK residential development or support that work. The tax would require identification of residential property development activities and the tax would be based only on profits arising from those activities.

The consultation makes it clear that companies could not avoid the tax by fragmenting development activities between different group companies – some of which are not primarily property developers.

What will the rate be?

The rate will be considered once the final model is clear, it will likely be announced at a future fiscal event.

How much does the government want to recover?

It is worth noting, that the Government’s aim is to raise £2 billion over a ten-year period. The cost of remedying the cladding scandal is rumoured to be close to £15 billion – although, no one really knows the cost.


For many leaseholders and campaigners this will, no doubt, be a very welcome consultation. There are many that consider the industry should foot the bill for the costs of remediation, given the issue was caused by materials either used in construction, or at some time afterwards. We are sure that the industry might look at this in a very different way – in that many installed materials in good faith and obtained building regulations approval for the materials at the time – so why should they be responsible for the cost.

We expect, though, that there will be mixed feelings on both sides. Whilst there is a penalty to the industry planned– which is in addition to the proposed Gateway 2 development levy – the impact over 10 years when you consider profits is, perhaps, firstly, not going to make a catastrophic dent in profits but secondly, not going to produce enough money in quick enough time to make marked progress in remediation.

We shall prepare a further update following the closing of the consultation. If, in the meantime, you have any queries relating to building safety, cladding or any other property related issue, please contact the Building Safety Team via either Ian Seeley, Joe Brightman, Molly Frankham or James King.