Insights 14.10.21 Author: Robert Maas

Residential Property Developer Tax (RPDT)

Insights 14.10.2021 Author: Robert Maas

The government have said that they are imposing a new tax on the residential property development sector from 1 April 2022. This will initially be introduced for a 10-year period, but this could be extended if the yield over that period does not reach £2 billion. The aim of the tax is to compensate the government for its expenditure needed to remove potentially dangerous cladding in blocks of flats of over 18 metres and to subsidise the removal of cladding in lower risk buildings over 11 metres.

The tax will be charged on the profits of residential property developers. The government has not yet decided on the rate but has said that “the tax burden should be proportionate, and considered in the context of the CT increase to 25%”. The charge will only apply to the profits of a company or group of companies which exceed an annual allowance of £25million. RPDT is, of course, payable in addition to corporation tax. Accordingly, what the government means is that in fixing the rate they will take into account that house builders will already be taxed at 25% on their profits, so if the extra RPDT is too high the total tax burden could deter builders from creating new housing. Some might think that at a time of an acute housing shortfall it is somewhat counterproductive to single out house builders as an ideal candidate for any additional tax!

RPDT is chargeable on residential development profits of a residential property developer in relation to a chargeable accounting period. The rate is yet to be announced. The profits for an accounting period are charged to RPDT only to the extent that they exceed the company’s RP allowance for that period. The tax is charged on the developer as if it were an amount of corporation tax chargeable on the developer. The tax applies to the developer’s first accounting period for corporation tax purposes that ends after 31 March 2022. Where the accounting period bridges 1 April, the period up to 31 March and the balance of the accounting period are treated as separate accounting periods with the profit being apportioned between them on a time basis. Curiously, it appears that time-apportionment must be used even if some other basis were more just and reasonable.

A residential property developer is a company within the charge to corporation tax which undertakes residential property development activities. It should be noted that the tax is not payable by individuals or partnerships of individuals. Residential property developer activities are activities carried out by a residential property developer on (or in connection with) land in the UK in which the developer has an interest. This includes:

  1. dealing in residential property,
  2. designing residential property,
  3. seeking planning permission in relation to residential property,
  4. constructing or adapting residential property,
  5. marketing residential property,
  6. managing residential property, and
  7. any activities ancillary to any of the above

Land of course includes buildings and structures.

A developer has (or had) an interest in land if:

  1. the developer or a related company has (or had) either 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, i.e. any interest or right held for securing the payment of money or the performance of any other obligation, or a licence to use or occupy land), and
  2. that estate, interest, right or power forms (or formed) part of the developer’s (or the related company’s) trading stock of a trade which includes carrying out activities for the purpose of (or in connection with) the development of residential property

It should be noted that the property has to be trading stock. The tax does not apply to development to let out. Trading stock means an estate, interest, right or power in or over land which is disposed of in the ordinary course of the trade, or which would be so disposed of on the completion of activities that are carried out for the purposes of (or in connection with) the development of residential property. Curiously, disposal for this purpose has the meaning given by TCGA 1992, which treats a part disposal as a disposal and defines a part disposal.

A company is related to a residential property developer if it is either:

  1. a member of the same group, or
  2. a relevant joint venture company in which the developer or a member of the same group as the developer holds at least 10% of the relevant joint venture company’s ordinary share capital (or if it does not have ordinary share capital is beneficially entitled to at least 10% of the profits of the company that are available for distribution to equity holders of the company (as defined in CTA 2010, Part 5, Chapter 6)

Residential property is:

  1. a building that is designed or adapted (or is in the process of being constructed or adapted) for use as a dwelling,
  2. land that is or forms part of the garden or grounds of a building within (a) (including any building or structure on such land),
  3. an interest in or right over land that subsists for the benefit of a building within (a) or of land within (b), or
  4. land in respect of which planning permission is being sought or has been granted so that it (or a building on, interest in or right over it) will fall within any of (a) to (c)

A building does not fall within (a) if it is designed or adapted (or in the process of being constructed or adapted) for use primarily as:

  1. a home or other institution providing residential accommodation for children,
  2. a home or other institution providing residential accommodation with personal care for persons in need of personal care because of old age, disability, past or present dependence on alcohol or drugs or past or present mental disorder,
  3. residential accommodation for members of the armed forces,
  4. residential accommodation for members of the emergency services or persons working in a hospital,
  5. a hospital or hospice,
  6. temporary sheltered accommodation,
  7. a prison or similar establishment,
  8. a hotel or inn or similar establishment,
  9. a monastery, nunnery or similar establishment, or
  10. student accommodation – but a building is designed or adapted (or being constructed or adapted) for use as student accommodation only if it is designed or adapted (or being constructed or adapted) for use by persons who will occupy it wholly or mainly for undertaking a course of education (including school pupils), and it is reasonable to expect that the building will be occupied by such persons on at least 165 days a year.

A residential property developer’s profits (RPD profits) in relation to an accounting period are the sum of:

  1. the developer’s adjusted trading profits (or losses expressed as a negative figure), plus
  2. the amount of any joint venture profits (or losses) that are attributable to the developer in relation to the accounting period,


  1. any allowable loss relief which the developer is given in relation to the accounting period,
  2. any allowable group relief claimed by the developer in relation to that accounting period, and
  3. any allowable carried forward group relief claimed by the developer in relation to the accounting period.

The adjusted trading profits are the profits for corporation tax purposes ignoring:

  1. profits, losses and capital allowances so far as they are derived from (or related to) activities other than residential property developer activities,
  2. profits of a charity trade carried on by a charitable company (within CTA 2010, s 467) so far as they are applied to the purposes of the charitable company only, and
  3. any amounts of loss relief, group relief or group relief for carried forward losses that would otherwise be available to the developer.

For this purpose, a developer can apportion profits and losses or capital allowances and balancing charges derived from or related to residential property developer activities and other activities on a just and reasonable basis.

The aggregate amount that can be deducted in respect of loss relief, group relief and carried forward group relief is limited to the “relevant maximum”. Where the total of the developer’s adjusted trading profits (or losses) and attributed joint venture profits (or losses) is less than or equal to the developer’s allowances, the deductible amount is obviously nil.  Where it is not, so there is a taxable amount, it is 50% of that taxable amount less any allowable group relief claimed by the developer in relation to the accounting period.  If that is a negative amount, the relevant maximum is again nil. If the effect of the cap is to reduce the allowable losses and group relief, the excess can be carried forward.

Like the rate of tax, the amount of the RP allowance, the threshold at which the tax becomes payable, has yet to be finalised but it is provisionally £25 million. It is an annual figure. If the company’s accounting period is less than a year, the allowance is reduced proportionately.

A group of companies share a single allowance. The group has to nominate which is to be the “allocating member”. It is left to yet-to-be-published Regulations for HMRC to specify the detailed rules on nomination. The concept appears to be that the allocating member will be able to allocate the allowance to group members in the way that best suits the group. If a group does not appoint a nominating member, the allowance is split equally between all of the members of the group. As this will include group companies which are not relevant property developers, it is important that a group appoints a nominated member. A receiving member (i.e. a company that has been nominated to receive all or part of the allowance) can claim the allowance only if an allowance allocation statement showing the figure claimed has been submitted to HMRC by the allocating member.

As the tax is collected as if it was corporation tax, the rules on payment, appeals, etc in relation to corporation tax also apply to RPDT with any necessary modifications. The main one is that an RPD developer must include in its company tax return a statement of the RPD profits, its adjusted trading profit or loss, the amount of any joint venture profits attributable to the developer, allowable loss relief and group relief given to the developer, any allowable carried forward group relief, and its allowance for the accounting period.  It does not need to provide this information if it is reasonable to assume that it will not be liable to RPDT for that period and it is not seeking to deduct any losses or group relief (FA 1988, Sch 18, para 7A inserted by Sch 2, para 2).

There is an anti-forestalling provision. If, as a result of arrangements entered into after 28 April 2021, trading profits arise in a pre 1 April 2022 accounting period instead of a later accounting period and the main purpose (or one of the main purposes of the arrangement is to secure a tax advantage as a result of the fact that, but for this provision, the profits would not be within the scope of RPDT, those profits must be treated as if they arise in the first chargeable accounting period ending after 31 March 2022.

Two or more companies form a group for RPDT purposes if one is the ultimate parent of each of the others and is not the ultimate parent of any other company. The intention seems to be that if a multi-national group owns more than one residential property developer subsidiary, they have to share one RP allowance between them.

However, for RPDT group relief purposes, two companies are part of the same relief group only if one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company. This seems to limit a group to a sub-group of a multi-national company. The RPDT group relief rules follow those which apply for corporation tax purposes.

There are also special rules in relation to joint venture companies. The concept is that the joint venture company should pay its own RPDT and has its own RP allowance (which is reduced if any of the shareholders are not residential property developers) in calculating the tax. In addition, the profits of the joint venture company are apportioned to its shareholders and taxed a second time on them but subject to their being given a tax credit for their share of the joint venture company’s tax. The overall effect is that there will be extra tax to pay by the shareholder if its own RPDT profits plus the amount apportioned from the joint venture company exceeds its own RP allowance as the tax credit reflects the joint ventures company’s RP allowance whereas the tax payable by the shareholder will not do so.

What next?

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