The Residential Property Developer Tax (RPDT) is a tax on the profits of companies carrying out residential property development (RPD) activities, and took effect on 1 April 2022. In this article we consider some of the key issues raised by the tax and the companies and activities that are likely to be impacted.

What is RPDT?

The 4% tax is charged on the trading profits of companies that undertake RPD activities. It applies to accounting periods ending on or after 1 April 2022 (with an apportionment for accounting periods that straddle this date). The tax applies to profits above a £25million annual allowance. The Government expects to raise £2bn in tax over RPDT's intended 10 year lifespan, for use towards their costs of dealing with defective cladding of high-rise housing following the Grenfell Tower fire.

Who does RPDT apply to?

The tax applies to companies which undertake RPD activities, have an interest in the residential property (at some point) on which the activities are undertaken, and are within the charge to corporation tax.

What are RPD activities?

RPD activities has a very broad definition and includes anything that is done by a residential developer on or in connection with land in the UK for the purposes of the development of residential property. In particular, it includes: dealing in residential property, designing it, seeking planning permission in relation to it (even where no further activity takes place), constructing or adapting it, marketing it or managing it.

What does an interest in residential property include?

Interest (in the residential property) is defined broadly and includes the benefit of an obligation or restriction or condition affecting the value of the land. The definition also includes interests held by "related companies". The interest must form part of the residential property developer's (or the related company's) trading stock. Holders of an interest or right for securing the payment of money or the performance of any other obligation are not treated as holding an interest in land.

Residential property is defined in a similar way to the SDLT regime (a property which is designed or adapted for use as a dwelling) including dwellings under construction or being adapted. Residential property was also originally designed to include undeveloped land in respect of which planning permission to construct residential property has been obtained (or is being sought). However, the Government subsequently amended the definition to remove the reference to undeveloped land where a residential property "would be" constructed.


A number of areas are exempt from RPDT including:

  • build-to-rent activity, although the Government will keep this under review;
  • non-profit registered providers of affordable housing and their wholly owned subsidiaries but with an exit charge applying where a corporate body benefitting from the exemption ceases to qualify for it; and
  • certain types of communal dwellings, including care homes, hospitals, hotels and prisons.

How is the tax calculated?

The tax is calculated by applying a rate of 4% using the applicable rate on a company's RPD profits above an annual allowance.

Profits are calculated using a formula which combines a company's 'adjusted trading profits' and the profits of joint venture companies in which it holds an interest, to the extent that they relate to its RPD activities, and then deducting allowable RPD reliefs (loss relief, group relief and carried forward group relief). Corporation tax loss reliefs (such as group relief and relief for carried forward trading losses) are ignored. The annual allowance is a group-wide allowance and will need to be allocated amongst members of a group by an "allocating member". Failure to do so may have negative implications as the default position is for the allowance to be divided equally among group companies.

Are there any practical points to consider?

A key point to note is that smaller businesses are likely to fall below the suggested annual allowance and, in turn, are unlikely to have to pay RPDT (even if, technically, they fall within the regime).

A second key point is that RPDT appears to go further, and covers more activities, than simply developing residential property. For example:

  • land promoters may fall under RPDT due to the wide definition of interest in land (for example, if they have the benefit of an obligation, restriction or condition affecting the value of the land) and also carry on RPD activities (which includes dealing, marketing and seeking planning permission in relation to residential property)
  • businesses that buy land under option, seek planning permission in relation to the land, and then resell the land at a profit, are also be caught by RPDT, provided their RPD profits are above the annual allowance
  • the absence of any grandfathering provisions in the legislation means that land sold under options entered into before 1 April 2022 still fall under RPDT if these options are exercised during an accounting period that ends on or after 1 April 2022 (but only if RPDT applies)
  • businesses that contracted to sell land or who exchanged (but had not completed) before RPDT was announced will also be caught by RPDT if and to the extent that their RPD profits fall under an accounting period that ends on or after 1 April 2022
  • it is important to note that RPDT will not apply to those who hold residential property as a capital asset. Therefore, landowners who are looking to exploit their capital asset should not be impacted directly by RPDT, although it remains to be seen whether land prices will ultimately reflect the impact of RPDT on developers. RPDT will not apply to those who have entered into options to sell land where this is not part of a trade (as the land is not "trading stock").

The legislation includes anti-forestalling measures (which apply to arrangements entered into since 29 April 2021) which are likely to scupper any attempt to accelerate profits in an attempt to avoid RPDT.

The tax has similar payment, reporting and compliance procedures to those under corporation tax, and RPD companies will be required to include a statement of RPD profits, losses and reliefs in their company tax returns.

RPDT was implemented by the Finance Act 2022 and the Government has published detailed guidance on the definitions used in the legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.