New taxes announced to fund cladding remediation

On 10 February 2021, Housing Secretary Robert Jenrick MP announced further plans in respect of remediation of defective cladding works.

As part of the announcement of the five-point plan, two new tax provisions were detailed:

• A new “Gateway 2” developer levy, to be applied when a developer seeks permission for certain high-rise developments in England; and
• A new tax, applicable more widely to the UK residential property sector.

These new taxing provisions are estimated to raise in the region of £2bn to help meet cladding remediation costs, with the wider announcement being in respect of a £3.5bn package of funding. This is in addition to previously announced measures, including £1.6bn for cladding rectification, and the establishment of a £30m Waking Watch fund.

The announcement has received mixed feedback so far, with some parties questioning why developers should be required to fund historic remediation works. However, the UK government’s position, as set out by the Housing Secretary, is fairly clear in stating its policy; “Remedying the failures of building safety cannot just be a responsibility for taxpayers. That is why we will… be introducing a levy and tax on developers to contribute to righting the wrongs of the past.”

Further details of the proposed taxes have not yet been published (with some speculation that a consultation document will be published as part of the Chancellor’s Budget on 3 March), and there are several key issues which will need to be addressed in due course. The press announcement for the new five-point plan refers only to cladding rectification, rather than wider issues of remediation (including insurance). The £3.5bn provision is also some way short of the estimated £15bn cost for rectification which has been cited by both the Fire Brigades Union and the Housing, Communities and Local Government Committee.

With regard to the specific issues around the levy and the tax, we await details as to:

• What size of development scheme will be subject to the levy;
• Which developers will be subject to the new tax, the basis of taxation, and how it will be administered; and
• As a tax on developers, how the extra cost is anticipated to impact investment and development of new schemes, and whether there will be any protection against such costs being passed on from developers to homebuyers?

Clarke Willmott will be monitoring the progress of this announcement on an ongoing basis. In the meantime, if you have any queries around development related tax issues please contact Chris Connors, Partner in our Corporate Tax team, on 0345 209 1870 or chris.connors@clarkewillmott.com.