Developer Tax to Address Unsafe Grenfell Cladding

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18 May 2021 | Updated 24 January 2022

The latest research by London lettings and estate agent, Benham and Reeves, has found that the UK residential property developers could be taxed on profits exceeding £25 million to address unsafe cladding on buildings like Grenfell Tower.

In the wake of the Grenfell Tower tragedy in 2017, it has become clear that high-rise residential properties up and down the country are covered in potentially very flammable external cladding, all of which must be replaced.

On 20 July 2020 the draft Building Safety Bill was published, setting out new regulations in England for residential buildings to prevent another disaster. BESA contributed to several consultations that helped to shape the bill, which will enshrine in law the recommendations made by Dame Judith Hackitt in her independent review of building safety held in the aftermath.

The new tax proposal has been conceived to ensure that developers contribute to the significant cost of completing this work on existing and new property.

Developers will be taxed on profits exceeding £25 million in order to contribute to a £5 billion relief fund and the research by Benham and Reeves shows that this will lead to the UK's 10 biggest developers facing a potential tax bill of £25 million.

"Housebuilder profits aside, it will be the British public who suffer most with less homes making it to market causing demand to further outstrip supply, thus pushing already inflated house prices even higher.”

 

– Marc von Grundherr
Director, Benham and Reeves

High Cost for the Biggest Develepors

With developer profits for 2020 providing an unreliable measure due to the impact of the pandemic, Benham and Reeves analysed developer profits from 2019 to see just how this new tax introduction could affect developer returns in more normal market circumstances.

With the exact tax figure yet to be announced, Benham and Reeves based their research on a conservative, but not unlikely, five per cent annual tax on profits over £25,000,000.

Based on this five per cent rate and the average profits of the 10 biggest housebuilders, Benhams estimates that they could see an annual tax bill to the tune of £25,104,500.

This could be far higher for the very biggest housebuilders though. Persimmon saw a pre-tax profit of over £1 billion in 2019, meaning that a five per cent tax above the £25m threshold could run as high as £50.1m a year.

Barratt and Taylor Wimpey could also be in for some of the heftiest tax bills at £44m and £40.5m respectively. Even the smallest housebuilders such as Crest Nicholson and Miller could see profits taxed to the tune of £4.8m a year.

Concern for Progress with Needed Homes

Director of Benham and Reeves, Marc von Grundherr, commented on the adverse effects that might be had by putting the cost of the programme on developers, rather than using government funding from other sources. 

“The UK is in the middle of a housing crisis and the government has very publicly stated that they are relying on the tenacious work of housebuilders and developers to introduce the hundreds-of-thousands of new homes that are so desperately needed.

"Rather than light a fire under developers to get out and get building, the government could now slap them with a brand new tax bill that will surely make them pause and consider whether scaling up their ambitions is even worth their while.

"Housebuilder profits aside, it will be the British public who suffer most with less homes making it to market causing demand to further outstrip supply, thus pushing already inflated house prices even higher.”

Picture: Grenfell Tower after the fire.

Article written by Bailey Sparkes | Published 18 May 2021

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