While you were away… new taxes

Headlines

• Draft legislation for the new RPDT has been published.
• Applies to IAS groups which exceed £25m of profits from residential development.
• Wide scope of activities, but narrow scope of residential e.g. care homes are not included.
• There is a temporary increase in all NIC rates for 1.25% for 2022/2023.
• For 2023/2024 onwards, a new tax, HSC, will be charged of 1.25% on employees earnings, employers and profits of the self employed.
• Cost of employing someone increases therefore by 2.5%.
• Self-employed top tax rate on income also moves from 45% plus 2% NIC to 45% plus 3.25%, a total of 48.25%.
• Dividend tax rates also to rise by 1.25% from April 2022.
• For specific advice please call Steve on 020 3963 8891 or Stephen on 020 3963 8891 or email at steve@internationaltax.eu or stephen@internationaltax.eu.

Residential developers

Draft legislation has been published for the new Residential Property Developers Tax (RPDT), which is due to come in on 1 April 2022.

It will apply to corporate groups whose profits from residential development exceed an “allowance” of £25m pa (so generous of HMRC to “allow” one to keep one’s own money).  Note that it will be in addition to planned rises in corporation tax up to 25%.  The rate of RPDT has yet to be announced but it is planned to raise £2bn over ten years from the larger developers.  However, if not enough tax is generated, then an obvious thing to do would be to reduce the allowance.

Residential development includes 

• dealing in residential property; 
• designing it (architects in-house or not); 
• seeking planning permission in relation to it; 
• constructing or adapting it (so conversions from commercial, or HMOs etc are caught); 
• marketing it (estate agents beware); 
• managing it (managing the development of property; not property management); 
• any activities ancillary to any of these activities.

Residential property does NOT include care homes etc., hospices, hotels etc., and student accommodation.  This mirrors the test of what a dwelling is for stamp duty land tax, but not the test for VAT.

NIC and Health and Social Care Levy

On 9th September 2021, the Prime Minister announced “Build Back Better: Our plan for health and social care”.  Focusing only on the tax part, he announced a temporary increase in national insurance contributions of 1.25% to take effect from 6th April 2022.  Temporary because the changes will be dropped w.e.f. 6th April 2023 but replaced with a new “hypothecated” tax (something successive Governments have denied is possible) called the “Health and Social Care Levy” (HSC).

This increase applies to Class 1 NICs, (both employers and employees, so effectively a 2.5% increase on jobs), Class 1A, Class 1B and Class 4 (self-employed).  Class 2 which is a fixed rate remains unchanged.

Class 4 is effectively a 2% tax on the self-employed which will go to 3.25%.

Whilst not subject to NICs, from 2022/23, a similar increase will be added to the dividend rate of income tax, although dividends received in ISAs or within the £2,000 annual exemption are not affected.

The monies raised are to help fund his new plan for health and social care, about which all I will say is that it is obviously written by someone with no understanding or experience of either the health or social care system.

Glossary and small print

This note assumes that the reader is either a client of this firm or an adviser to such a client and is, of course, no substitute for advice based on your personal facts and circumstances.  No liability is accepted for reliance by any person upon any statement made in this paper. 

HMO – house in multiple occupation; IAS – International Accounting Standards; RPDT – Residential Property Development Tax; NIC – national insurance contributions, HSC – Health and Social Care Levy.