Residential property developer tax

On 1 April 2022 a new residential property developer tax (RPDT) comes into force across the UK, including in Wales.

RPDT will be payable by residential property developers on profits derived by companies from the development of residential property in the UK. The tax will be charged on profits exceeding £25m (therefore only affecting large companies) at a rate of 4%.

The former Secretary of State for Housing, Communities and Local Government, the Right Honourable Robert Jenrick MP, announced the new tax on 10 February 2021.

A consultation on the design of the tax was launched on 29 April 2021 and the response to the consultation was published as part of the Autumn Budget last year.

The tax forms part of the government’s Building Safety Package, which aims “to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market.”

In its policy paper, published on 27 October 2021, the government has explained the rationale behind the new tax, stating: “Given the significant costs associated with the removal of unsafe cladding, the government believes it is correct to seek a fair contribution from the largest developers in the residential property development sector to help fund it.”

Through the consultation process, HM Treasury has suggested that it sees RPDT as being ‘time limited’ and has suggested in its policy paper that it will keep the tax under review. Nevertheless, it hopes to raise £2bn of revenue from the tax over a 10-year period.

The new tax measure is not expected to impact individuals or have any notable macroeconomic effects. The government have suggested that “any impact on house prices and transactions is expected to be negligible, as new builds account for a small share of overall market transactions.”

It is anticipated, however ,that RPDT will undoubtedly have a negligible operational impact for a small number of large businesses undertaking residential property development activities in the UK.

The tax on profits arising from residential profits is new legislation. RPDT is to be included in the Finance Bill 2022 and will apply to profits arising from residential property development in accounting periods ending on or after 1 April 2022. However, if a company’s accounting period straddles 1 April 2022, the profits of the accounting period will be apportioned to determine any amounts falling before and after the introduction of the new tax.

The tax will be reported and paid using the same return and systems as for corporation tax (so the administrative legislation in Schedule 18 to the Finance Act 1998 will apply.) On the understanding that large companies already know how to calculate profits for the purposes of corporation tax, the government has deliberately aligned the administration of RPDT with corporation tax to avoid the impact on companies.

The tax is effectively a surcharge on residential development activities.

Groups will be required to calculate their annual profits arising from UK residential development activity, adjust the profits to account for any allowances and other deductions, then apply the 4% RPDT rate to determine the tax due.