The Autumn Budget: Residential Property Developer Tax (RPDT) - Boodle Hatfield

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29 Oct 2021

The Autumn Budget: Residential Property Developer Tax (RPDT)

A key announcement in the Autumn Budget speech was the confirmation that the new Residential Property Developer Tax (RPDT) will apply at a rate of 4% to affected companies.

Draft legislation for the RPDT was published at the end of September but two key aspects – the rate of the tax and the profits threshold above which it will apply – had been held back until Budget day.

What is the RPDT?

The RPDT is effectively a new corporation tax charge intended to target the largest UK residential property developers. The policy behind its introduction is to raise funds to fund the package of measures designed to bring an end to unsafe cladding used in residential developments. It will be reported and collected in line with normal corporation tax rules.

Who does it apply to?

The RPDT only applies to developers of residential property. The definition of residential property under the legislation is broad, but borrows some familiar exclusions for institutional residential buildings from elsewhere in the tax code. Purpose-built student accommodation that is occupied by students for a sufficient proportion of the year is excluded.

The tax only applies to corporation tax payers carrying out residential property development activities where the developer, or a related party (for example, a group company) holds an interest in the relevant land as trading stock. This effectively excludes the build-to-rent sector – a point which has been the subject of much debate as the RPDT has moved through the consultation process. For completeness, non-resident companies are capable of meeting the conditions and will be caught if they do so.

What does it apply to?

The RPDT applies to profits from residential property development activities in excess of an annual allowance of £25m. This allowance is applied on a group wide basis and it can be allocated by the group between its companies as it sees fit. Any unused allowance is not available to be carried forward.

When calculating the level of profit that is subject to the RPDT, restrictions apply to the deductibility of finance costs and the availability of corporation tax loss reliefs are ignored. This will increase developers’ profits, bringing more of them into the charge; despite the Government’s stated intention to capture only the ‘largest’ residential property developers in the UK, it seems quite probable some of those caught by the RPDT would otherwise be considered to be mid-size developers.

‘Development activities’ are again broadly defined and include marketing and management activity as well as the sale of land with the benefit of planning permission.

When will it apply?

The RPDT will apply from 1 April 2022 to accounting periods ending on or after that date. Where a company’s accounting period straddles that date, profits will be time apportioned. Unfortunately, there is no grandfathering for developments that are already underway as of 1 April 2022 and such developments will be caught if profits accrue post-1 April 2022.