As per our previous blog, a reminder that the residential property developer tax (RPDT) will be introduced next week from 1 April 2022 and will be applied to the profits that certain companies and corporate groups derive from UK residential property development. The stated aim is to ensure that the largest residential developers make a "fair" contribution to help pay for building safety remediation work. This tax will be in addition to the Building Safety Levy, and to the recently announced requirement that residential developers must also share the burden of remediating residential buildings between 11 and 18 storeys high.
Recap – what does the RPDT involve?
It was announced in the 2021 Autumn Budget that the tax will be charged at 4% on trading profits from UK residential property development activities, exceeding an annual group-wide allowance of £25 million. Development activities are widely defined, including obtaining planning permission, designing, constructing, and marketing the completed project. Build-to-let developments are excluded as the land is held as investment. Development activities are only within scope of the tax if the developer (or a company to which the developer is related) has an interest in the land (including any buildings or structures), or for certain activities, a previous interest in the land.
The calculation of profits charged to the tax will be based on the existing rules for corporation tax (with certain adjustments, most notably, there will be no deduction for finance costs), and the tax will be reported and paid using the corporation tax return and administrative framework. The rules relating to joint ventures appear to have been simplified (compared with early drafts of the legislation), but still with the aim of ensuring that it isn't possible to take the benefit of multiple annual allowances through investing in joint ventures; a joint venture company would have its own annual allowance, with material interest holders in that joint venture company (effectively 10% plus shareholders) being allocated a proportion of the JV profits when determining (and in effect reducing) their own annual allowance.
Following the increase in the corporation tax rate to 25% from 1 April 2023, developers subject to the RPDT will effectively pay a combined headline rate of tax of 29% on their profits which are within scope of the tax.
Additional burdens
In addition to RPDT, developers of residential property could be subject to a number of potential taxes and levies that the government may seek to introduce by virtue of the Building Safety Bill, particularly if the ongoing discussions between the government and industry fail to result in an agreed approach to funding the remediation work that needs to be undertaken to ensure the safety of residents.
You can read more about these potential charges in our blog on the latest amendments to the Building Safety Bill here.
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.
