RPDT - Residential Property Developer Tax

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Commercial Property Article

20 May, 2022

RPDT is a new tax on profits of companies carrying out Residential Property Development activities, and is intended to cover the costs of replacement unsafe cladding. It will only apply on accounting periods which come to an end on or after April 2022. The tax will apply to profits above a £25m annual allowance and the government expects to raise £2 billion in tax over the intended ten year life span.

Who will this apply to?

The tax will only apply to those larger companies which undertake Residential Property Development (RPD) activities, have an interest in the residential properties at any point on which the activities are undertaken and are within the charge to corporation tax.

RPD activities has a very broad definition and it includes anything that is done by a residential developer, on or in connection with land in the UK for the purposes of the development of residential property in particular, it includes:

  • Dealing in residential property;
  • Designing it;
  • Seeking planning permission in relation to it;
  • Constructing it or adapting it;
  • Marketing it or managing it; and;
  • Any activities ancillary to these other activities.

The tax does not apply to individuals or partnerships in which all the members are individuals.

As the definition is very broad, it could extend to a property trader who would purchase the land, obtain planning permission and then sell the land. Therefore, there would not be any involvement in the development of the land but they will still be subject to the RPDT.

Interest in residential property - Interest (in the residential property) is defined broadly and includes the benefit of an obligation or restriction or condition affecting the value of the land. Residential property is defined as including dwellings under construction or being adapted. Residential property was also originally designed to include undeveloped land in respect of which planning permission to construct residential property has been obtained (or is being sought). However, the Government has subsequently amended the definition to remove the reference to undeveloped land where a residential property "would be" constructed.

Exemptions

Those activities it is not intended to cover are:-

  • Build to rent activity;
  • Registered providers of affordable housing and their wholly owned subsidiaries but with an exit charge applying where a corporate body is benefitting from the exemption ceases to qualify for it; and
  • Certain communal dwellings such as care homes, hospitals, hotels and prisons.

How is the tax calculated

The tax is 4% of any RPD profits above £25 million. The profits will be calculated using company trading profits and the profits of JV companies in which it holds an interest, to the extent that they are related to its RPD activities.

Practical points

  • Many small businesses are most likely to fall below the threshold and in turn will not have to pay RPDT.
  • Land promoters may fall under the RPDT due to the wide definition of interest in land.
  • Anyone who contracted to sell or exchanged but not completed before RPDT was announced will also be caught by the tax.
  • it is important to note that RPDT will not apply to those who hold residential property as a capital asset. Therefore, landowners who are looking to exploit their capital asset should not be impacted directly by RPDT, although it remains to be seen whether land prices will ultimately reflect the impact of RPDT on developers.

The tax will have similar payment, reporting and compliance procedures to those under corporation tax, and RPD companies will be required to include a statement of RPD profits, losses and reliefs in their company tax returns.


The government have indicated that they feel the tax will have a negligible effect on the housing market as new build account for a small share of the overall market transactions. However any tax announcement is greeted as a pleasant addition and is usually passed down the chain, and will doubtless have an effect deal on both ends of the development chain. With the cost of living being squeezed, and a housing market being put under increased strain as a result any additional tax will be less welcome than ever. It is a case of watching this space as to how the effects are felt.

For more information contact Matthew Jones in our Commercial Property department via email or phone on 01254 222316. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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