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The introduction of a Residential Property Developer Tax (RPDT), has now been confirmed. The legislation implementing the RPDT was published on 4 November 2021 and it will come into effect from 1 April 2022. We’ve answered some of the common questions developers have around the new tax.
RPDT will be charged (as if it were an amount of corporation tax) on profits arising from residential property development (RPD) at a rate of 4% on profits exceeding £25 million per year.
The tax applies to residential property developers (RP developers). For the purposes of RPDT, a company is deemed to be an RP developer if:
A company will undertake RPD activities if it does anything on or in connection with land in the UK in which the developer has, or has had, an interest for the purposes of, or in connection with, the development of residential property. Typical RPD activities include:
Yes, this is possible where the company holds, or has held, an interest in the relevant land.
An RP developer (or a related company) will have an interest in land if the developer (or related company) has an estate, interest, right or power in or over the land, or the benefit of an obligation, restriction or condition affecting the value of an estate, interest, right or power in or over the land (other than an excluded interest). This interest must form part of the RP developer’s (or the related company’s) trading stock of a trade which includes the carrying on of activities for the purposes of, or in connection with, the development of residential property.
It should be noted that certain interests in land are excluded interests for the purposes of RPDT – these are: (a) any interest or right held for securing the payment of money or the performance of any other obligation; and (b) a licence to use or occupy land.
The requirement to have an interest in land should mean that profits from similar activities by companies acting as third-party contractors who are not RP developers or ‘pure promoters’ will not be caught by RPDT.
Yes, it can if the RPD activities:
Yes. The draft legislation sets out a number of exclusions from RPDT including:
The draft legislation also provides that non-profit housing companies will not be considered RP developers – this means that social housing providers and social landlords will fall outside the scope of the tax together with their trading subsidiaries. The build-to-rent sector will also be excluded from the tax, as implied by the ‘trading stock’ requirement for an interest in land, although the government intends to keep the decision under review. Likewise, profits arising from RPD activities carried out on land held for investment purposes will fall outside the scope of RPDT.
Where an RP developer has an accounting period beginning before 1 April 2022 and ending on or after this date, a rule is provided for this “straddling period”. Accounting periods falling before 1 April 2022 will be treated as a separate period to those falling after, so profits treated as arising on (and after) this date will be subject to the RPDT provisions. The legislation contains anti-forestalling provisions to prevent an RP developer attempting to accelerate profits so that they arise in an accounting period ending before 1 April 2022.
Contributors: Chloe Jodkowski and Laura Allum
12 November 2021