HMRC Residential Property Developer Tax

The Government introduced the Residential Property Developer Tax (RPDT) on 1 April 2022, after being announced in the autumn 2021 budget. 

The tax requires that any companies, including those in group structures, will pay an additional 4% of corporation tax on trading profits exceeding £25 millon.

This tax calculation will be achieved by effectively giving relevant companies, or of course groups, a £25 million annual allowance which can be applied against their taxable profits of the year.

Where the £25 million annual allowance is not exceeded, there is no need to report on RDPT.

What companies are ‘developers’?

A company will be a developer if it has, or had, a land interest in the site being developed, or, is a group where a company holds a land interest, or, holds at least 10% shareholding in a joint venture company that has a land interest.

Social housing non-profit providers are excluded and large property investors are specifically excluded from this tax, such as those using a build-to-rent approach.

Examples or RPDT

• A property developer (Example Ltd) is undertaking residential property development activities and the sales of long leases are part of its trading profits liable to the new RPDT. When calculating its residential property development profits, Example Ltd should exclude its profits that relate to arranging the construction of any build to rent developments (and any of its subsidiaries). It may record the trading profits on the disposal of retained freeholds (and to any of its subsidiaries). To the extent that those profits are attributable to the value of the retained communal facilities that provide a continuing source of income, and of the right to receive future event fees, it would be reasonable to exclude them when calculating profits.
• Smith Ltd (a subsidiary of Example Ltd) is a property rental business, this is not a trading activity and does not come under the scope of RPDT.

Whilst this may not feel of relevance to a large proportion of smaller operators within the housebuilding sector, history tells us that the current incumbents in Numbers 10 and 11 Downing Street have form for reducing thresholds, so one can only guess how long this £25 million threshold will be in place for.

This increase comes at a time when government is setting the bar high as far as their national housebuilding targets are concerned and any increase in tax rates for property developers can only create additional costs to the average house purchaser.

However, the Government argues that RPDT us not expected to impact on house prices apart from where it would be in line with the existing distribution of home ownership.

Following a series of consultations, the Government claims the tax is justified as forming part of the Building Safety Package aiming to bring an end to unsafe cladding, where significant costs associated with the removal of unsafe cladding, the largest developers in the residential property development sector should help fund it.

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