UK:
Residential Property Developer Tax – FAQs
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What is RPDT? Residential Property Developer Tax (RPDT) is a new
tax proposed to be levied against certain residential property
developers on certain profits.
In late September, the government published draft legislation
and initiated a technical consultation on RPDT, following on from
an initial consultation in April this year. The final details of
the tax are expected to be announced in the autumn Budget on 27
October 2021.
Why is the government proposing to introduce RPDT?
In the wake of the Grenfell tragedy, the government has agreed
to remove unsafe cladding for leaseholders in all residential
buildings 18 metres (6 storeys) and over in England. It is
anticipated that RPDT will raise around £2 billion within the
next decade, which the government hopes will partly cover these
remediation costs (currently estimated at £15 billion).
Who will be liable to pay RPDT?
Companies will be liable to pay RPDT if they pay corporation
tax.
They must also engage in residential property development
activities. These are activities which meet two tests:
- They must be carried out on, or in connection with, land in the
UK in which the developer has or had an interest - They must be carried out for the purposes of, or in connection
with, the development of residential property
For the purposes of RPDT, the government defines
“residential property” as “a house or flat that
is considered as a single residence, generally together with the
grounds and garden or any other land intended for the benefit of
the dwelling.”
Where land is being developed or undergoing a change of use,
“residential property” will also include:
- buildings suitable for use as a dwelling but not yet used as
such - existing buildings being adapted, restored, or marketed for
domestic use - undeveloped land where a residential building is or will be
constructed - undeveloped land undergoing a change of use, for which planning
permission has been obtained
It is likely that certain communal dwellings will not be classed
as “residential property” for the purposes of RPDT,
including hotels, prisons, monasteries and nunneries, boarding
schools, residential accommodation for the armed forces,
residential homes for children and the elderly, and student
accommodation.
What will be payable under RPDT?
RPDT is proposed to be levied on profits connected to
residential property development activities over a certain
allowance. The level of this allowance and the rate of the tax have
yet to be decided. Both are expected to be finalised in the autumn
Budget.
When will RPDT be payable?
RPDT is expected to be levied on profits arising in accounting
periods ending on or after 1 April 2022, with profits from periods
straddling that date being apportioned.
It is likely that the tax will be payable following specific
events, such as the sale of new homes or land with the benefit of
planning permission.
Why is the government proposing to tax developers
specifically?
The government recognises that many developers have had limited
involvement in the development of high-rise buildings, and that
many have already taken steps to cover the costs of remediation
where applicable. Even so, certain residential developers are
deemed to be operating in a market that will benefit from the
substantial amount of funding offered to address building safety
defects. The government therefore believes it is right to seek
contributions from certain developers in the residential
development sector to help fund its remediation costs.
What are the implications for developers?
Many residential property developers are likely to be faced with
increased tax bills as a result of the new legislation. Given that
the rate of the tax has yet to be announced, it is difficult to
predict its full impact. Nevertheless, RPDT may present a need for
certain developers to consider the viability of certain
developments.
What has been the response to the proposed legislation?
Feedback on the legislation from within the industry has
stressed the need to balance the interests of developers and other
parties, including the residents of high-rise buildings.
Concerns have been raised about the wide-reaching implications
that RPDT may have on the viability and delivery of new homes,
particularly in the current context of proposed regulatory
changes.
Concerns have also been raised regarding the levying of the tax
on a speculative basis, for example, where planning permission for
residential building is granted, but where development is never
actually undertaken.
Where can I read more about the proposed legislation?
You can read the draft legislation here and the explanatory notes here. The April consultation paper is also
available, here.
Can I give feedback on the proposed legislation?
The government is seeking views on the draft legislation for a
technical consultation running till 15 October 2021. Comments can
be sent to RPDT.mailbox@hmrc.gov.uk
Sources:
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.
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