Residential Property Developer Tax
The Residential Property Developer Tax (RPDT) is a new tax on large residential property developers that came into effect on 1 April 2022. The new tax was first announced in February 2021 as part of a package of measures to contribute towards the Government’s cost of dealing with defective cladding in the UK’s high-rise housing stock discovered following the Grenfell Tower fire tragedy in June 2017.
This is a profits-based tax levied on the largest residential property developers. The tax is payable by developers with annual profits over £25 million. For companies within the scope of the tax, RPDT is charged at 4% on residential property development profits that exceed their annual allowance of £25 million.
The RPDT applies to profits arising from residential property development in accounting periods ending on or after 1 April 2022, with profits from periods straddling that date being apportioned. The tax applies to all qualifying businesses not just those who were directly involved with defective cladding matters.
HMRC’s internal manuals list the following four key concepts that need to be considered when determining whether a company is an RP developer with the effect that the activities of the company (or other members of its group) fall within the scope of RPDT:
- Is the company liable to UK Corporation Tax?
- Is it conducting activities of, or in connection with, the development of residential property in the UK as part of, or in support of, a trade continued by the company or a member of its group?
- Does the company, or a member of its group, have an interest in the land that is being developed, either directly or through holding a substantial interest in a relevant joint venture company, which will later be disposed of in the course of that trade, other than an excluded interest?
- Does the development activity relate to residential property, in whole or in part, other than properties which are specifically excluded?