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Proposed new taxes for real estate developers

The tragic Grenfell Tower fire that claimed 72 lives in June 2017 brought to the fore the use of flammable cladding on high-rise buildings, which is said to have contributed to the rapid spread of the blaze.

In December 2018 the government introduced an amendment to the Building Regulations which prohibited the use of ‘combustible cladding’ in high-rise buildings over 18m. However, in November 2020 it was reported by Building News that 44% of high-rise buildings in England still have in place some of the aluminium composite material blamed for the Grenfell fire.

The Government has since announced an additional £3.5bn investment (£5bn in total) towards removing dangerous cladding from blocks taller than 18m. For lower-rise buildings between 11m and 18m, leaseholders are to be offered a new long-term, low-interest loan scheme for cladding removal.

In addition, the Housing Secretary, Robert Jenrick, has unveiled plans to introduce two new taxes on the real estate development sector.

Cladding tax

A cladding tax is targeted to developers who seek permission to develop certain high-rise buildings. Also known as the ‘Gateway 2’ developer levy, the tax will go towards the cost of replacing dangerous cladding on high-rise buildings. The type of high-rise buildings that the levy is expected to apply to have not yet been defined.

Residential development tax

A tax for the “largest property developers” is proposed to come into force from 2022. This tax is expected to raise £2bn over the course of 10 years and will be used to fix historic fire safety defects, including cladding remediation.

Robert Jenrick commented:

The tax will ensure that the largest property developers make a fair contribution to the remediation programme, reflecting the benefit they will derive from restoring confidence to the UK housing market.

There has not yet been confirmation on which developers will be included in the tax or how much they could be charged.

The government will consult on these proposed policies and provide further details in the coming weeks.

If you require further advice on property taxes, please contact one of our Construction and Real Estate team on 01903 234094.