The government announced on 10 February 2021 it would introduce a new residential property developer tax (RPDT) as part of its building safety package. The tax is one of the government’s measures to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market.
Earlier this year the government consulted on the policy design of the tax and recently undertook a technical consultation on draft legislation which closed on 15 October 2021.
Today the government has confirmed that the rate of tax will be 4% and the annual group wide allowance (above which profits will be chargeable to RPDT) will be £25 million. The tax will be included in the corporation tax returns of those companies liable for the new tax.
RPDT will apply to the profits of UK and non-UK companies or corporate groups undertaking residential property development activities in the UK, above an annual group wide allowance of £25 million.
The draft legislation provided ahead of the Budget provides a wide definition of RPD activities, to include anything that is done by a company on or in connection with UK land for the purposes of the development of residential property, including dealing, designing, constructing or adapting, marketing, managing, seeking planning permission and any ancillary activities to these.
Certain communal accommodation (including hotels, care homes, most purpose-built student accommodation, among others), build to rent, charitable trades, and activities of non-profit housing companies are all outside scope.
The new tax will be introduced from 1 April 2022.
The £25 million allowance will be welcomed by many businesses who will fall outside the charge to RPDT. The 4% tax should therefore apply only to the largest residential property developers operating in the UK, which was the government’s stated intention.