Overview
From 1st April 2022, the Residential Property Developer Tax will be levied on profits arising from residential property development. Tax Manager, Bernard Critchley explains more.
What is Residential Property Developer Tax?
With effect from 1 April 2022, the Residential Property Developer Tax (RPDT) will be levied on the profits of companies subject to UK Corporation Tax where they arise from residential property development, the details are outlined below.
Where a company’s accounting period straddles 1 April 2022, the profits of the accounting period will be time apportioned to determine the amounts falling before and after the start date.
- RPDT is charged at a rate of 4%.
- The tax will be charged on residential property development profits to the extent that they exceed the available annual allowance of £25 million (pro-rata for short accounting periods).
- Non-profit housing companies are specifically exempt. An exit charge will apply if the company ceases to be a non-profit housing company.
- Profits are after adjustments for tax purposes but exclude amongst other things, loss or group relief and loan relationship debits/credits (e.g. finance costs such as interest). Allowances may not be claimed in respect of capital expenditure.
- Anti-forestalling provisions prevent the acceleration of profits to an accounting period ending before 1 April 2022, as a result of arrangements entered into on or after 29 April 2021.
What is Residential Property Development?
The activities that are caught within this category are fairly wide-ranging. They must be carried out by a developer:
- On, or in connection with, land that the developer has (or has had) an interest in (including through related Group companies and joint ventures).
- For the purposes of development of residential property.
- The property or land must be held as trading stock (Property Development as opposed to Property Investment).
- Activities include:
- Dealing in residential property.
- Seeking planning permission.
- Construction or adaptation.
- Any other ancillary activity.
What is residential property?
A residential property as defined by the legislation is any building used as a dwelling, although there are some exclusions as set out below. RPDT would also apply to buildings in the process of being constructed or adapted for such use and the accompanying gardens and grounds. Land with planning permission, or where it is being sought, will also fall within the definition if this would cause the land or buildings to meet the residential property criteria.
Exclusions include:
- Residential accommodation provided for children, individuals requiring personal care (elderly, disabled or those with dependency issues).
- Residential accommodation for the armed or emergency services and hospital workers.
- Hospitals or hospices.
- Temporary sheltered accommodation.
- Hotels or similar.
- Monasteries/Nunneries etc.
- Student accommodation.
Groups of companies
- The annual allowance is divided by the number of companies in the group unless an 'allocating member' is nominated when the allowance can be allocated as directed.
- Group companies may only claim an allowance when there is an allocating member if an allowance allocation statement is submitted to HMRC.
Administration
The relevant profits and tax within the scope of RPDT will be reported on the company’s tax return and the tax due will be payable alongside any other Corporation Tax liability.
How can Aspen Waite help?
For more information on how RPDT may affect your company and tax affairs, please get in touch and one of our team wil be happy to provide tailored advice.