Autumn budget 2021: rate of residential property developer tax announced
On 29 April 2021, the government published a consultation on what is to be called the Residential Property Developer Tax (or RPDT), a new tax on residential property developers that will apply from April 2022 at a rate of 4% on annual profits from residential developments exceeding £25 million. The tax is intended to contribute to government costs in relation to the removal of unsafe cladding, following the Grenfell Tower disaster in 2017.
The Treasury has now published a response to its initial consultation on the design of the new tax, which ran until July. RPDT will be largely based on trading profits from residential development as computed for corporation tax purposes, but interest and other funding costs will not be deductible in the calculation of the tax.
The government have confirmed that student accommodation and build-to-rent (BTR) developments will be excluded from the tax. Although the government has decided that BTR activity should not be subject to the new tax “at this point in time”, the decision will be kept under review.
Tax exempt non-profit registered providers of affordable housing and their wholly owned subsidiaries will be exempt from the scope of RPDT. Similarly, care homes will also be excluded from the scope of RPDT. Extra care housing and housing with support will not be excluded on the basis that these are more akin to mainstream residential dwellings and any exemption could introduce distortions between competing retirement models in the market. The government intends to expand the scope to include premises providing temporary sheltered accommodation such as emergency shelters and respite care, as well as on-site and residential accommodation for members of the emergency services, however it will not extend to hotels and specialist purpose-built communal housing.
The tax is intended to be time-limited and to raise at least £2 billion over a decade. It will be repealed once sufficient revenue has been raised. Any tax due will be reported and paid as part of the company’s corporation tax return. The existing corporation tax quarterly instalment payment rules will apply to the tax, although transitional arrangements will mean that that the first RPDT payment will not be due until the first quarterly instalment payment after commencement of the tax on 1 April 2022.
A nominated company will not be allowed to report and pay RPDT on behalf of the whole group. Instead, RPDT will be included within any group payment arrangements for corporation tax. Losses incurred before the introduction of the tax will not be capable of reducing RPDT profits. However, it will be possible to offset post-commencement carried-forward RPDT losses and group relief from ring-fenced RPDT activities against RPDT profits. As with corporation tax for large businesses, though, there will be a 50% restriction on losses carried forward.
Where a joint venture is a corporate body then RPDT will apply at the joint venture level. Those holding interests in the joint venture will not be subject to the RPDT on their share of profits of a joint venture, to the extent that those profits have been subject to the tax at joint venture level. The legislation will apportion the £25m annual allowance to those holding an interest of 10% or more in a joint venture. The government will not seek to tax profits of joint venture members that are outside the scope of UK corporation tax or are UK tax exempt, but there will be a mechanism for adjusting the £25m annual allowance in these circumstances.
The latest version of the legislation was published on 4 November as part of the Finance Bill.