New UK Residential Property Developer Tax

On 27 October 2021, as part of its Autumn 2021 Budget, the UK government confirmed the introduction of a new Residential Property Developer Tax (RPDT), which is set to come into effect from 1 April 2022.

The RPDT will be charged at a rate of 4% and will be levied against annual residential developer profits in excess of £25 million. The tax is part of the government’s efforts to fund the costs of removing unsafe cladding from high-rise residential buildings. As such, the tax is a temporary measure, set to be in place for only ten years, during which time the Government aims to raise £2 billion from it. The Government has noted however, that it will consider extending that time period if the tax fails to raise the amount targeted.

Who is liable to pay the RPDT?

The RPDT will only apply to companies and corporate groups engaged in residential property development activities, with annual profits greater than £25 million. The activities concerned include (but are not limited to) the designing, constructing, restoring, marketing, and managing of residential properties, in relation to land in the UK that the developer has or had an interest in. For the purposes of the RPDT, the term ‘residential property’ refers to any buildings designed, intended, adapted, converted, restored, or marketed for the purpose of dwelling. 

Undeveloped land where the construction of a residential building is being planned or pursued will also be charged the RPDT. Importantly, the Government has clarified that the RPDT will only apply to those companies or groups of companies that are charged corporation tax. The RPDT will not apply to certain exempted developments such as hotels, hospitals, prisons, care homes, student accommodation or properties used for charitable activities. The new tax will also not apply to Build to Rent (BTR) developments, although the Government has noted that this exemption will be subject to review. However, whilst care homes are exempt from RPDT, assisted living housing will not be, meaning the tax may nevertheless have implications for the retirement living sector.

How is the RPDT collected?

The RPDT will be administered by HMRC and collected alongside corporation tax. However, it must be included as a separate calculation and is not subject to any interest deductions. The company or group will also be required to submit details regarding their residential property developer profits as part of its tax return.