Housebuilders face low single-digit tax rise for cladding removal, suggests Berenberg

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Housebuilders face a potential tax rise in the low low-single digits range following the inquiry into the Grenfell Tower tragedy, suggests broker Berenberg.

The inquiry highlighted shortcomings across the construction sector, it said, and debates continue about who should pay for the remediation of existing buildings.

The complexity of the situation has left investors puzzled about the outlook, adds the broker, which has published a long note on the issues.

Housebuilders have been told by the government they will have to contribute significantly to remediation funding through new levies and taxes.

The broker estimates these might result in a low-single-digit increase in the tax rate, depending on how the new taxes are implemented.

“No details are available about the levy, albeit it will clearly affect those housebuilders that build more apartments, such as Berkeley, the most.

“We know slightly more about the tax: it is expected to generate c£200m pa for a decade. We estimate that, on a corporate profits basis, this would add an extra 1.8% to the tax bills of the builders.”

Many builders have already set up provisions for the costs to remove unsafe cladding in buildings they built, Berenberg notes.  

Insulation materials group Kingspan PLC (LON:KGP) was heavily criticised by witnesses at the inquiry but its financial risks are likely to be minor in the context of the overall business, said the broker.

Berenberg has buy recommendations on housebuilders Bellway PLC (LON:BWY 3,240p target), Persimmon (LON:PSN 3,180p); Taylor Wimpey (LON:TW. Target 180p ) and also Kingspan (€81 target).

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