The Residential Property Developer Tax (RPDT) reflects HM Revenue & Custom’s (HMRC’s) belief that property developers need to be part of the solution to complex issues within the industry, many of which require remediation works.
As such, the Government feel that the UK’s largest residential property developers should be prepared to contribute towards the associated costs.
The tax will take effected from 1 April 2022, and is expected to be ‘time-limited’.
Who does the RPDT apply to?
A group of companies or a standalone company within the charge to Corporation Tax, and who have a trading interest in the development, would be within the scope of the RPDT for an accounting period:
- if profits arising from residential property development exceed an annual allowance of £25 million (per group).
Groups will be able to allocate this allowance amongst its companies and, where the allowance is not exceeded, there will be no need to report profits from residential property development activities.
Worth noting is that developers who build-to-rent have been excluded, alongside non-profit housing providers, and purpose built student accommodation and care homes.
How will the RPDT be calculated?
The Government have confirmed an activity-based approach to calculating profits chargeable to the RDPT – i.e. only those relating to residential property development activity.
Tax due will be declared as part of a company’s Corporation Tax return since the Government are perceiving the RDPT to be an extension of Corporation Tax.
It will be computed in much the same way, in that appropriate deductions and allowances will be taken into account before the amount owing is determined.
RDPT will be calculated at a rate of 4% on RDP profits exceeding the £25m annual allowance but, when calculating profits arising from RDP activity, bear in mind the following:
- the annual allowance, if under-utilised, can not be carried either forward or back;
- developments underway when RDPT was announced will not attract any favourable treatment;
- losses made and brought forward pre-April 2022 cannot be deducted for the purposes of calculating chargeable profits; and,
- similarly, finance costs cannot be deducted for the purposes of calculating chargeable profits.
- where a company’s accounting period straddles 1 April 2022 the profits will be time apportioned to determine those falling before and after the start date.
Taking the above into consideration, it’s likely that this new tax is going to have a farther reach than many companies were perhaps expecting.
We anticipate that further guidance will be issued by the Government, in due course.
How can George Hay help?
For those within scope of this legislation, the RPDT represents another significant liability.
If you’re a property investor or developer who will be impacted by the RPDT, we would welcome the opportunity to discuss this and your wider tax, accounting and business advisory needs, with you.
Contact us today, at our offices in Cambridgeshire, Hertfordshire or Bedfordshire, to speak to one of our team of friendly professionals.
