The new tax will be levied on the profits that companies and corporate groups derive from UK residential property development, to ensure that the largest developers make a fair contribution to help pay for building safety remediation.
The tax will be charged at 4% on profits exceeding an annual allowance of £25m.
This is expected to raise £640m by 2024-25, with annual tax take averaging around £220m a year.
Lee Nuttall, head of tax at law firm, Gowling WLG, said: ‘The announced headline rate of 4% is on the high side of the range of expected outcomes but not a surprise given a pre-announced reduction in those developers actually liable to pay the tax.
‘What’s more, the £25m 'allowance' before the new tax bites will be seen by many as a generous move.’
The tax comes as the sector faces rising raw material costs and labour shortages.
Phil Kinzett-Evans, partner at UHY Hacker Young, said: ‘From 1 April 2022, this new tax imposes further costs on an industry that already has to deal with multiple targeted taxes like Section 106 and the Community Infrastructure Levy.
‘When property developers are already facing rising raw material costs, a skills shortage driving up wages and spiralling energy prices, introducing another tax is going to be a tough pill to swallow.
‘The pain will be felt particularly keenly by large corporate developers who focus on affordable housing where margins are already thinner. It could well trigger more developers to look to higher-margin markets like prime residential property. It remains to be seen what impact this will have on government targets to meet affordable housing demand.’
