The Budget – Residential Property Developer Tax: Who will be affected

Budget 2021 brings us further detail on the (now significantly reduced in scope) Residential Property Developer Tax.  Following feedback from industry and professional groups, the RPDT will now only apply to what the Government deems the largest residential property developers, and will be limited in time with the goal of raising £2bn of revenue over the course of a decade. 

The tax will apply from 1 April 2022 to profits arising from residential property development recognised in accounting periods ending on or after that date, with apportionment as necessary.

So who will be affected?

  • Companies only (no limits on residence) who:
    • are undertaking “Residential Property Developer” (RPD) activities e.g. seeking planning permission, designing, marketing, constructing, managing or dealing in residential property.
    • hold or have held land as trading stock (third party investors are currently not affected).  The legislation is not designed to capture 'build to renters'.
  • And in addition the group's profits from UK RPD activities exceed £25 million per year. This will be achieved by providing a £25 million annual allowance for each group to use against their profits for a year. Where this allowance is not exceeded, there will be no need to report residential property development profits.

Are there any exemptions?

  • Developers undertaking RPD activities which are considered charitable activities under the existing corporation tax exemptions should not have corporation tax trading profits and therefore would not be within scope of RPDT.
  • Many communal dwellings including hotels, student accommodation and homes or other institutions providing residential accommodation with personal care for persons in need of personal care due to old age, disability, past or present dependency on alcohol or drugs or past or present mental disorder are not caught, however retirement villages and properties for the elderly with no care element will be at present.

How will it work?

  • The computation of profit will start from the same basis as for Corporation Tax before an adjustment is made to identify only the profits that relate to the residential property development activity. There will also be a restriction in respect of finance costs.
  • The £25 million allowance can be allocated by the group between its companies, then profits in excess of this allowance will be taxed at a rate of 4%.
  • Any tax due will be reported and paid as part of the company’s Corporation Tax return.

Draft legislation is available, although we await the Finance Bill for the final detail.  If you have any questions about how this will affect your business, do not hesitate to contact Foot Anstey.

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