The new Residential Property Development Tax – here’s what you need to know

Staying true to the old saying that there are only two certainties – death and taxes – it comes as no surprise that a new tax on residential property developers will be effective from 1st April 2022.

The Residential Property Developer Tax (RPDT) is effectively a new 4% corporation tax charge which is meant to target the UK’s largest residential property developers. The government has said the RPDT will be used to help fund the government’s unsafe cladding remediation costs (highlighted as long overdue by the Grenfell tragedy).

The tax will apply to companies, including any group companies, which undertake “Residential Property Development Activities” in excess of £25 million.  This £25 million allowance is applied on a groupwide basis but cannot be rolled over. There are also restrictions on deductions for finance costs.  Corporation tax reliefs are ignored completely, which could bring more mid-size developers into the charge.

“Development Activities” themselves are widely defined and will include those that sell, market, construct, adapt and manage property. The definition will also include the sale of land over which planning permission has been granted. Institutional residential buildings such as care homes and purpose-built student accommodation (provided it is properly occupied by students) will continue to be exempt from the definition of residential property and are therefore excluded from the RPDT. However, extra care housing and housing with support will not be exempt, which could be a blow to the supply of UK retirement homes.

As stated above, the tax applies from 1st April 2022, so that Development Activities that have commenced as of 1st April 2022 will be caught where profits have arisen post 1st April 2022. It therefore goes without saying that the new tax will need to be a key consideration in any viability assessment for new residential developments and you should budget accordingly.

For advice about real estate development, please contact our Commercial Real Estate team.

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