RPDT canal

Residential Property Developer Tax

RPDT canal
A Summary of the Government Consultation

The government has set out a five-step plan to tackle the use of unsafe cladding. One of the points raised was the proposal of two new taxes in the form of a new Gateway 2 levy applicable when residential property developers seek permission to develop high-rise buildings in England, as well as a new tax for residential property development companies.

The consultation document issued is focused on the introduction of the RPDT to apply to the largest residential developers and the government is currently consulting on the design of that tax proposed to apply from April 2022. The consultation runs until 22 July 2021.

We are expecting a separate consultation from the government with regards to the design of the Gateway 2 levy in due course.

The New Residential Property Developer Tax - Core Principles

The government intends for the new tax to be a time-limited measure in order to raise £2 billion over a decade to help fund the government's planned remediation work. Additionally, the government aims for the tax to be applicable only for the "largest residential property developers". How the relevant developers will be determined will be based on their profits and an annual allowance of £25 million.

The fundamental design of the tax would be in the form of one of the following models:

  1. Company-Based Approach The RPDT would apply to standalone companies and groups of companies that undertake any amount of UK residential property development or support that work; subject to a significance test. Therefore if the residential property development activity is insignificant then the total profits would not be liable to the RPDT. The significance test will most likely be based the profit or turnover relating to the residential property development activities and the taxable profits will be computed in line with Corporation Tax requirements.
  2. Activity-Based Approach This approach would also apply to companies with any amount of residential development activity. However unlike the company-based approach, which would apply the tax to the total profits, this approach would base the tax on the amount of profits relating to the residential property development activities only; the profits will be subject to adjustments. The government is considering significant 'adjustments' to profits to ensure that residential developers are subject to tax in a broadly comparable way and the profits subject to this tax are ring fenced from any other activity. The proposed adjustments include restrictions to group relief and more significantly an adjustment to include profits from developments for rental even if they are not sold. This could involve an arm’s length profit for intra-group transfer, or in the absence of such transfers, an imputed amount of profit reflected on the development returns. This type of taxation could also apply where a property that is developed and then leased for the long term e.g. by a build to rent developer; or as an interim measure before a developer's interest in a development is sold. There is a risk that calculating the profits on the completion of a rental development could inadvertently lead to a spike in taxable profits in a single year. This may not be comparable to the house builders which develop properties at a higher rate which may see sales spread over a longer period of time.

The New Residential Property Developer Tax - Annual Allowance

The government proposes that the tax would only apply to the profits which exceed an annual allowance of £25 million. This would be a group-wide allowance, which ensures that companies and groups with profits below this amount remain out of scope of the RPDT entirely. However, any unused allowance cannot be carried forward to future years. The aim of the annual allowance would appear to suggest that the tax would only be a concern for companies with relatively high profits.

The New Residential Property Developer Tax - Tax Rate

There is currently no commitment from the government on a specific rate of tax, however a set of principles have been set in the consultation which will be used to determine the final tax rate. These principles include:

  • The tax burden should be proportionate, and considered in the context of the planned Corporation Tax increase to 25%.
  • The tax should apply to the largest residential property developers, to ensure that those with the broadest shoulders contribute the most.
  • The tax should not have a disproportionate impact on housing supply, or other government objectives on housing.
  • While the rate may be amended once the tax is in force, it is not intended to fluctuate year-to-year.

The New Residential Property Developer Tax - Implications

The potential RPDT could have numerous commercial implications on larger companies in the residential property development industry. Although the consultation states the RPDT aims "to ensure that those with the broadest shoulders contribute the most", the implications of the new tax could be wider-reaching than the government’s plans.

It will be important to monitor the government consultation as planned housing developments which would have been viable in the planning process will now need to consider the potential economic impact of the new tax. Similarly, planned developments may be deferred due to the uncertainty surrounding the new tax and how it will be applied.

Additionally, it is worth noting that some of the proposed adjustments will mean that the profits subject to RPDT could be significantly higher than their accounting or usual taxable profits. As a result, it may be difficult for some companies to establish if they will need be subject to the new tax.


Overall, we expect the form of the tax to be much debated over the next few months. Clearly the intention is to target both property development in the widest sense, so it will be irrelevant whether the property is held for sale or as an investment, and the class of assets involved. One of the biggest challenges will be that profit relating to property development can be ‘lumpy’ and therefore whilst the tax is aimed at the larger companies, there is a risk that others will find themselves within its remit.

Contact us

Caroline Fleet
Caroline Fleet
Head of Real Estate