What's In Store For The Property Sector Going Into 2022?
For some time now the property sector has been one of the toughest to advise – notwithstanding the normal vagaries of the market, the tax regime has been what can only be described as fluid. New taxes have been introduced, existing ones both increased and reformed and the regulatory environment has become a minefield for all but the most initiated.
As a result, it is increasingly the case that the small landlord has found it hard to prosper whilst the larger investors and developers have found ways to adapt and continue to survive and thrive. And yet as we look forward to a new year where things can return to something resembling normality for most people, the property sector must yet again find a way to navigate through a minefield of new regulation, new taxes, and expected market volatility. So what is in store for 2022?
First and foremost, we must welcome – if that is the right word – the introduction of yet another new tax for the property sector. The Residential Property Developer Tax (RPDT) will, after a period of consultation that recently ended, be introduced in April. The new tax will be set at 4%, will be collected alongside corporation taxes, and will apply once a business makes £25 million in profit (excluding debt interest) from UK residential property development activity.
Like all previous sector-specific taxes, there will be a huge amount of complexity to ensure it is properly targeted but leaving that to one side, for now, the government has made it clear that RPDT is a temporary tax to pass the cost of cladding remediation onto the sector raising an estimated £2 billion over a decade.
The government has also stated its belief that the rate of 4% will have only a marginal impact on housing supply, prices, and rents. It will be interesting to see whether that belief stands up to scrutiny in retrospect but given past experience of so-called temporary taxes, it is hard to imagine that a future government will feel in any way duty-bound to remove the tax and grant a “tax cut” targeted at “wealthy property developers”. Politically that just feels a stretch.
So I think it is a reasonable expectation that RPDT will be around for a longer period than envisaged and like all these things will likely rise over time from the initial 4% and perhaps be widened in scope to those developers who perhaps don’t profit from the tune of £25 million or develop non-residential property (in which case they may have to change the name).
In addition, the end of the emergency stamp duty land tax reductions that have boosted activity in the market and expected interest rate rises to deal with inflation that has begun to rise for the first time in a generation will likely see continuing volatility in the housing market with obvious knock-on effects for the sector.
Coupling this with the ongoing effect the sector has had to absorb with massive changes to corporate and personal interest tax relief, the introduction of a whole host of new taxes for international investors in the UK property sector and increasing compliance, it is more important than ever that anyone involved in the market seeks out advice. And that is the best advice I can give for now.