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  • Katherine Bullock

No Place Like Home – RPDT Update – Are we there yet?



The draft legislation for the new Residential Property Developers Tax (RPDT) was published for technical consultation on 20th September. The final design including the rate of tax and the level of annual allowance will be revealed on Budget Day, but it is well worth any company with land related activities taking a look at what’s been revealed so far.


As expected, RPDT will apply from 1st April 2022 on profits in accounting periods ending on or after that date (clause 7). For accounting periods straddling 1st April 2022, the periods either side of that date will be treated as separate accounting periods and profits apportioned accordingly.


"...The definition of an interest in UK land is wide and somewhat circular..."

RPDT is charged on the residential property development profits (RPD Profits) of a residential property developer (RP Developer) to the extent that those profits exceed the annual allowance. Unused allowance cannot be carried forward.


Only profits above the annual allowance are subject to RPDT at a still-unspecified rate (clause 8). At the design phase, the annual allowance used was £25million. This figure is absent from the draft legislation, although it is mentioned once in the explanatory notes. The annual allowance applies on a group basis and is divided between all group companies (Clause 13) unless nominated otherwise. Clause 18 defines a group for these purposes as two or more companies where one is the ultimate parent of the others and is not the ultimate parent of any other company. The design paper for the RPDT appeared to anticipate a new concept of a single economic entity but this does not appear to have found its way into the draft legislation - yet.


An RP Developer is a company within the charge to corporation tax that undertakes any residential property development activities (RPD Activities) (clause 2). RPDT may therefore apply to non- resident companies with a UK permanent establishment or within the offshore property developer rules. In a further change to the draft legislation, a non-profit housing company (clause 2) as defined is also excluded.


An RPDT Activity (Clause 3) must (1) be connected to UK land in which the developer or a related company has or had an interest (clause 4); and (2) be for the purposes of or in connection with the development of residential property (clause 5). A related company is either a group member or a JV company in which the developer holds 10% of the ordinary shares.


The definition of an interest in UK land is wide and somewhat circular. The land does not need to be owned when the activity occurs; an interest at any time in the past appears sufficient. However the interest of a mortgagor and a licence to use or occupy land are excluded. The interest must also form part of the trading stock of a trade which includes carrying out RPD Activities. Trading stock is a defined term. HMRC considers that the wording excludes third party residential construction companies unconnected with the landowner.


Activities for these purposes include not only constructing but dealing, designing, adapting, marketing, managing, and seeking planning permission for residential property. Residential property (clause 5) is a building designed or adapted or in the process of being constructed or adapted for use as a dwelling; the grounds and gardens of such a building; and any land subsisting for the benefit of either building or grounds. It also includes land in respect of which planning permission for residential property is being sought or has been granted. Again what constitutes seeking and whether it must be successful remains unclear.


Whilst developers of communal dwellings such as hospitals, prisons, hotels and – a late change – certain self-contained student accomodation are excluded from the scope of the tax, residential homes for the elderly which do not provide personal care are caught.


RD Profits or Losses are calculated for an accounting period using the formula A + B – C – D – E (Clause 6), where A is the developer’s adjusted trading profits/losses, B are any attributable JV profits; C is loss relief; D is group relief; and E is carried forward group relief.


Adjusted trading profits or losses (A in the formula) are calculated as for corporation tax but exclude:

  • Profits, losses, and capital allowances related to activities other than RPD Activities apportioned on a just and reasonable basis.

  • Profits of a charitable trade carried on by a charitable company.

  • Any loss relief, group relief or carried forward group relief otherwise available. These are then permitted under C, D and E of the formula according to the rules in Schedule 1.

  • Credits or debits in relation to loan relationships or derivative contracts.


Given the size of many development interest and finance costs, RPDT may apply to more extensively than otherwise expected when profits are calculated on this basis.


Losses incurred before 1st April 2022 are not relieved. Losses arising after that date can be carried forward but are restricted (clause 12) to 50% of the combined profits (A+B) exceeding the allowance less any group relief claimed in the period. The disallowed amount can be carried forward but only to the extent that it exceeds the allowance.


The proposed treatment of a joint venture (JV) company is particularly complex and applies where a JV company is an RP developer; is not a 75% subsidiary of another company; and 75% of its ordinary share capital is held by five or fewer persons. Members of a group count as one person.


Where the JV company is opaque, a two-tier approach applies. Firstly, RPDT is charged on the JV company. RPDT is then also charged on the RPD Profits of the JV company attributed to JV members with at least a 10% of the ordinary shares (clause 6). This is a far lower threshold than the significant economic interest envisaged. The RP Profit or Loss attributed to each member equals the percentage of the JV company’s profits available for distribution to them but only profits below the JV company’s annual allowance are attributable. This avoids double taxation.


Where a body not liable to RPDT holds 10% of the ordinary shares in the JV company, the JV company’s allowance is restricted in proportion to the interest of that body unless the body allocates some of its own notional allowance to the company (clause 14). How this works in detail remains unclear.


Anti-avoidance provisions are not as extensive as expected. There are anti-forestalling provisions to prevent the acceleration of profits if they arise as a result of arrangements entered into on or after 29 April 2021 but there are no provisions to prevent the dissipation, recategorization or disguising of profits. Instead, the transfer pricing rules apply to RPD activities and non RPD activities within the same company and between the developer and the non-RPD activities of a company under common control.

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