The tax proposal has been conceived to ensure that developers contribute to the significant cost of replacing dangerous external cladding on high-rise residential properties.
Developers will be taxed on profits exceeding £25m in order to contribute to a £5bn relief fund.
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, 5% annual tax on profits over £25m.
This could be far higher for the very biggest housebuilders, though.
Persimmon saw a pre-tax profit of over £1bn in 2019, meaning that a 5% 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.
Marc von Grundherr, director of Benham and Reeves, said: “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.”
