The government has published draft legislation for the new Residential Property Developer Tax (RPDT) on companies that carry out residential development in the UK. RPDT will be applied from 1 April 2022, and full details will be announced in the autumn Budget on 27 October. In this article, we examine the draft legislation.
The new Residential Property Developer Tax is intended to raise at least £2bn over 10 years to help fund measures to bring an end to unsafe cladding following the Grenfell Tower tragedy.
The draft legislation has been issued following a government consultation from April to July this year. Not all the initial proposals outlined by HMRC have been included in the draft, although it may still change as technical consultation on the legislation is ongoing.
What is included in the draft legislation?
- The taxpayers
The tax will be payable by corporations that carry out residential property development in the UK and “hold an interest in the land”. Non-UK companies developing in the UK will also be liable to pay the tax, but the draft legislation excludes non-corporates.
“Residential property development” is defined broadly and includes seeking planning permission, construction and adapting residential property, selling partially built properties, marketing and managing residential property.
- Residential property
“Residential property” includes houses, flats and buildings used as dwellings. It extends to undeveloped land with permission to construct residential property and property that can be altered for residential use.
The draft legislation excludes build-to-rent property despite it being in the initial proposals. This could change before the autumn Budget.
Student accommodation is excluded from RPDT, but retirement living homes is included (although residential care homes are not). The draft legislation does not mention affordable homes, but this is subject to discussion, so may yet be included. Non-profit affordable housing providers will be exempt.
The autumn Budget on 27 October will reveal some of the current gaps in the draft legislation, such as the tax rate
- Taxable profits
The initial proposals said that tax would only be payable once profits exceeded £25m, but this figure does not appear in the draft legislation. Instead, it refers to an “allowance”, which will no doubt be revealed in the Budget.
Companies will be taxed based on residential property development profits (calculated for Corporation Tax purposes).
The initial proposals had suggested an alternative, namely that RPDT would be payable on all a company’s profits where the company had “significant” profits from residential property development. However, the government has not gone down this company-based route and instead, the tax will be calculated by reference to profits from residential property development.
In calculating profits, no relief will be given for interest costs, capital allowances or losses from other activities.
- The tax rate
The tax rate has not yet been disclosed, so the Budget will be essential viewing for property developers.
The tax will apply from 1 April 2022.
The autumn Budget on 27 October will reveal some of the current gaps in the draft legislation, such as the tax rate and whether build-to-rent developments and developments of affordable homes (other than by not-for-profits) will be caught by RPDT.
We will issue an update about RPDT following the autumn Budget.
If you have any queries about Residential Property Developer Tax, please contact Daniel Broughton at [email protected].