Residential property developer tax from April 2022

Draft rules for a new Residential Property Developer Tax (RPDT) aim to tax the profits of residential property developers within the charge to corporation tax, although RPDT is a different system to corporation tax.

Sole traders and partnerships (including LLPs) are exempt.

There will be no deduction allowed for the RPDT when computing profits for corporation tax purposes.

RPDT applies to profits arising in accounting periods ending on or after 1 April 2022, with profits from periods straddling that date being apportioned.

The rate was set for RPDT in the 27 October 2021 Budget of 4%.

The money raised will contribute towards the government's cladding remediation costs project.

A company or group will be taxed under RPDT for an accounting period where it undertakes UK residential property development activities and makes profits over an annual allowance of £25m per group.

For the purposes of the tax, profits will be calculated using a formula: A+B-C-D–E.

A is the developer's adjusted trading profit, or loss, for the accounting period.
B is the developer's share of any joint venture profit, or loss, for the accounting period.
C is any allowable loss relief which the developer is given for the accounting period.
D is allowable group relief claimed by the developer for the accounting period.
E is allowable carried forward group relief claimed by the developer for the accounting period.

There are anti-avoidance rules to counteract acceleration of profits via any arrangements entered into on or after 29 April 2021 where the main purpose is to obtain a tax advantage.

Comments on the draft

Comments are invited on the draft rules until 15 October 2021, and after that the rules will be added to the forthcoming Finance Bill.

Residential property

The rules provide for a wide-ranging definition of residential property for the purposes of the tax.

It covers buildings designed or adapted for use as a dwelling as well as land that is intended for development where planning permission is being sought or has been granted for residential property development, and land where residential properties are in the course of construction.

Also covered is land that is provided alongside residential property, or general amenity land developed alongside residential property.

Residential property development activities include dealing in such property, its design, pursuing planning permission, construction, marketing, management, and ancillary activities.

Exclusions

Certain types of buildings are excluded, so that any profits or losses from their development are not taken into account when computing profits that are subject to RPDT.

These are typically either specialised institutions that provide temporary or longer-term accommodation for a specific class of residents, and buildings that are occupied purely under licence to occupants that do not hold any lasting rights over the property. This includes residential homes for children and personal care homes.

Exemptions also cover accommodation for armed forces personnel, the emergency services, hospital staff, hospices, temporary shelters, prisons, hotels, and student and religious accommodation.