The Residential Property Developer Tax: What will be its reach?
Lawyers and clients in the residential property, development and construction sectors will be watching the passage of draft legislation for a proposed residential property developer tax (RPDT). The RPDT is a corporation tax to be levied from 1 April 2022 with the stated aim of helping finance the demise of unsafe cladding.
A technical consultation was also published on how the tax will apply in practice (this closed on 15 October).
According to related HM Treasury guidance, the purpose of RPDT is to “ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs” – government has its sights on raising £2 billion through the charge within 10 years.
Lack of clarity
There is, however, a lack of clarity around the level of profits that will attract payment of RPDT. Initial proposals suggested profits in excess of £25m but the draft legislation refers, instead, to an ‘allowance’ which was due to be announced at October’s Autumn Budget, along with the rate of RPDT. It is expected that any unused allowance cannot be carried forward into future years.
The new law will be wide ranging – catching residential property across the board. As well as the obvious, undeveloped land which has planning permission for residential development will also be caught; as will any existing building that is being adapted, restored to, or marketed for, domestic use.
There are exclusions, including:
· Build-to-rent properties
· Purpose-built student housing will not be within scope if occupied by students for at least 165 days a year
· Residential homes for children, the elderly or other vulnerable people
· Supported accommodation with care and support
· Prisons and hospitals
What about those who will be liable to pay RPDT? Under the proposals, the tax will be paid by residential property developers who hold an interest in the land and who pay corporation tax, including those involved in both residential and other types of property development.
As corporate tax rules will apply, the relevant accounting period will be that covered by the company’s annual accounts. Specifically, it will apply for accounting periods ending on or after 1 April 2022, with profits from periods straddling that date to be apportioned.
Though RPDT is restricted to property development within the UK, a company based elsewhere will be liable for development in the UK where its profits are within the charge to UK tax.
What does this mean?
The property and construction sectors will be watching closely to see how the RPDT will impact their finances and should be preparing now for the additional cost they may have to bear. It may be reassuring to know that the allowance will apply on a group-wide basis.
We recommend you take specialist advice from tax experts on what this proposed tax may mean for you.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you