New Residential Property Developer Tax

Autumn Budget 2021: New Residential Property Developer Tax

Caroline Fleet, Partner, Head of Real Estate
27/10/2021
New Residential Property Developer Tax

Residential Property Developer tax to apply from April 2022 at 4% rate

The government has announced that alongside the building safety levy, a new Residential Property Developer Tax (RPDT) will be introduced from April 2022, applicable to trading profits arising from this date. The tax has been introduced in order to provide funding of £2 billion towards the public funding of the cladding costs. This tax will apply to all residential property developers who realise profits of over £25 million in any year. The profit level will be apportioned by the number of group companies. Payments under the tax will also be based on the existing quarterly instalment payment regime for corporation tax.  

The tax has been designed along corporation tax principles and will be collected as an extension of corporation tax. Importantly while it is based on corporation principles, it is a separate calculation and will not allow any deduction for interest or finance costs. 

To fall within the scope of the tax, the developer will need to be carrying out residential property development, have an interest in the land that forms part of their trading stock, and have made corporation tax trading profits from those activities. The fact that the developer needs to hold an interest in the land will mean that most pure promoters will fall outside the scope of this tax. 

The government has also confirmed that the Build to Rent sector is not intended to fall within the scope of this tax, but this sector will be kept under review. In addition, certain communal housing development will not be within scope, for instance care homes and purpose-built student accommodation. However, bare land on which planning permission for residential development is being sought or has been granted, will be within the scope. Where developers are undertaking mixed-use development, they will need to undertake a just and reasonable apportionment between the residential and non-residential elements. There will also be an exemption from this tax for those charities, and their 100% owned subsidiaries that operate within the affordable housing sector. This exemption will be subject to an exit charge.

There will be no recognition of existing corporation tax losses arising from residential development activity, instead however, it will be possible to carry forward RPDT losses from 1 April 2022, and utilisation of these losses will mirror the rules for existing corporation tax losses carried forward.  

While this tax has been proposed by government as a temporary measure to assist with the funding of the cladding costs, and their expectation is that it will be in existence for a decade, there is no sunset or review clause within the draft legislation. At a time when the government is falling short of its house building target, it is overall very disappointing that they have pressed ahead with this ‘niche’ tax, which targets many of the developers who are best placed in assisting them with the housing shortage, leaving them with an effective rate of 29% corporation tax from April 2023. 

Autumn Budget 2021

What do the announcements mean for you and your organisation?

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Chancellor, Rishi Sunak, announced a new capital allowance ‘super-deduction’ and first year allowance.
Chancellor announces a number of significant changes to the capital allowances system.
Can companies claim capital expenditure when they move premises?

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Caroline Fleet
Caroline Fleet
Head of Real Estate
London