“Although ministers still consider a valid argument can be made for profits from BTR activity being subject to the new tax as a form of residential property development activity, they have decided that BTR activity should not be in scope of the tax at this point in time,” the letter said.
When the government consulted on the design of the tax in April, the consultation document said that the government was considering how to bring the development profits from BTR activity within the tax. This would have required groups to pay tax on the basis of the fair value of the development on initial rent, less the costs of development, even though the profit would not have been realised because the group would be retaining the property.
The letter from the Treasury said that BTR would be excluded “because of the concerns raised throughout the consultation process about the taxation of a deemed development profit introducing substantial complexity and resulting in a dry tax charge on unrealised profits, and there is no clear alternative to address these concerns”.
“It makes a lot of sense to exclude BTR from the new tax,” said Richard Croker, a property tax expert at Pinsent Masons, the law firm behind Out-Law.
“BTR investor-developers remain fully liable for cladding remediation work and costs are not passed on to renters. It made no sense for the BTR sector to contribute to cladding remediation costs incurred in relation to the homes-for-sale market,” he said
The government is not proposing to change the draft legislation as RPDT only applies where an interest in land is held as trading stock as part of a trade and trading profits are made from residential property development activity, which would not normally be the case with BTR activity.
Last month the government launched a consultation on the draft legislation and confirmed that student accommodation would be excluded from the new tax. However, at that stage the Treasury said that the treatment of build-to-rent and affordable housing had not been finalised.
The draft legislation has now been amended to make it clear that the exemption for charitable providers of affordable housing will also cover wholly owned subsidiaries of charities providing affordable housing.
“This change is welcome as there had been concerns that because subsidiaries of housing associations were not within the exemption, the tax could still apply to them,” Croker said.
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