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  • Katherine Bullock

Residential Property Developer Tax (RPDT): Birth of a super tax?

Ever since the release of the consultation document in April this year, much comment has been made about the new and upcoming tax on UK residential property development, the Residential Property Developer Tax, or RPDT for short. This is to be expected, since the prospect of a new tax is enough to give even the most hardened tax practitioner pause. Whilst of immediate interest to companies operating in the sector, the proposed tax is of more general interest also as a possible template for future taxes.

"...This is not...a tax that property investors can safely ignore..."

RPDT is proposed to apply from 1st April 2022 on profits in accounting periods ending on or after that date. It applies to a company or group of companies that undertake residential property development activities in the UK and generate relevant profits that exceed the £25million annual allowance. Only profits above the annual allowance are subject to RPDT at a yet unspecified rate.

The tax is an entirely separate tax with its own complex rules and is levied in addition to corporation tax at a rate yet to be disclosed. Although many features of the new tax will doubtless seem familiar to veterans of the corporation tax code, there are hints of some changes to the definition of a single corporate entity (aka a group) and the exclusion of any deduction for funding costs and interest which perhaps hint at changes that might ultimately transfer to the corporation tax code.

So why is RPDT a super tax? In addition to its focus on raising taxes from a defined sub-sector, RPDT is intended to be a time-limited tax running for a decade in order to raise a target of £2 billion. These funds are hypothecated; that is ring fenced to cover the cost of remediation work following the Grenfell Tower tragedy. RPDT therefore moves the cost from the general taxpayer to the residential property developer who it is argued will profit the most from restored public confidence. As the whole sector will benefit, the tax is not limited to developers of high rise buildings nor does it make allowance for any company that has already paid for or undertaken remedial work.

Residential property development for these purposes includes both development to sell and development to rent. This is not therefore a tax that property investors can safely ignore. For build to rent companies this raises the prospect of a dry tax charge when the development phase ends.

The residential property must be in the UK and is currently defined as any single residence along with its grounds, gardens, and any land intended to benefit the dwelling. Disappointingly for those arguing for a single definition across all taxes, RPDT will have its own, although bearing a close resemblance to the SDLT definition. It will include buildings suitable for use as a dwelling even if not so used at the time; existing buildings being adapted, restored to, or marketed for domestic use; and undeveloped land where a residential building is or will be built. The expected list of communal dwellings such as hospitals and hotels are excluded from the scope of the tax, but interestingly affordable housing associations where the charities exemption does not apply, residential homes for the elderly which do not provide care and purpose-built self-contained student accommodation which is seen as competing with the wider sector may be caught. The consultation document is silent on whether local authorities and pension funds will be exempt and the current proposals as regards joint ventures suggest at least an indirect charge is possible.

While intended, with its £25 million annual allowance, to target only the largest and wealthiest developers, application of the allowance to a group and to profits before deduction of interest means that, as with the corporate interest restriction (CIR), companies who do not consider themselves large developers are likely to find RPDT applicable.

There are also two potential methods by which the tax liability may be assessed. Either the company/group will be taxed on all its profits if more than a de minimis amount of development activity on UK residential properties takes place; or all entities will have to calculate how much profit was generated by UK residential property development activity and then be taxed on that amount. As you would expect the new tax will come with its own tax avoidance code. Either way, the scope is likely to hit many companies who might expect to be well below the threshold.

Much of the above may be subject to change. The consultation ends today. Not all of the information required to judge the tax’s impact on a particular case is available. Nevertheless it is not safe to ignore RPDT. Sensible steps include modelling the two methods of calculation, considering the current group structure and how future development profits are likely to fall, particularly if the property will be retained. With nine months to prepare, it is time to take action.


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