13 June 2022

A beginner's guide to Residential Property Developer Tax

Sectors:

Property and Construction

Services:

Corporate Tax Planning

As of 1st April 2022, the Residential Property Developer tax legislation (RPDT) came into effect as a response to the impact of the Grenfell Tower tragedy. The objective behind the tax is to generate £2 billion over ten years to fund the removal of unsafe cladding, in an attempt to provide assurance and confidence in the housing market.

What is RPDT?

RPDT is a 4% tax charge on profits for UK businesses involved in residential property development activities. The RPDT is expected to remain active for only 10 years, however no ‘sun-set’ clause has been included within the legislation. This means that the companies affected will have to keep in mind that the tax may last more than the current 10 year duration if governmental targets are not reached.  

Who will the tax affect?

The RPDT will only arise on groups who have interest in residential property development and those who make annual profits over £25 million.

The £25m threshold is actually a group allowance which must be allocated against RPDT profits arising within the group.

RPDT profits are calculated using the principles of corporation tax, with exclusion to financing costs and interests as well as restrictions to group relief. RPDT is also through the same return tax system as that of corporation tax. Meaning that RPDT will act very similarly to that of corporation tax surcharge rather than a new tax.

Does your company take part in RPD activities?

The definition of RPD activities encompasses all activities carried out with the purpose of developing residential property on, or in connection to UK land by a residential developer. Whether it be designing, dealing, marketing, managing or constructing the property.

As it applies to companies that are undertaking property development where the properties are held as stock in trade, property investment companies are excluded.

Are there any exemptions?

It is worth noting that there are some exemptions to the tax. Specific residential properties under development that will be excluded from RPDT are:

  • Student accommodation
  • Temporary accommodation
  • Hotels
  • Prisons
  • Care homes
  • Homes for vulnerable individuals
  • Nonprofit registered providers of social housing and their wholly owned subsidiary companies

Supporting businesses with RPDT

If you would like more information about residential property development tax or are curious to find out if your business is liable, please get in touch with our specialists who are on hand to support you and your business with any queries.

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