RPDT is to be charged on the profits of companies carrying out residential property development and will apply to profits arising in accounting periods ending on or after 1 April 2022, with profits from periods straddling that date being apportioned.
The Government states that it is introducing the charge to ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs. Given the limited involvement of many affected taxpayers, and the commitment of others to remedy defects, it appears to be an opportunistic tax raising plan.
Who will be affected?
The tax will apply to residential property developers (RP developer). The draft legislation defines an ‘RP developer’, as an entity within the charge to corporation tax and undertakes residential property development activities. This appears to be circularity. The phrase ‘residential property development activities' is non-exhaustively defined as dealing in residential property, seeking planning permission in relation to it, constructing or adapting it, and marketing or managing it. A key point is that a developer must have or have had an interest in the land at some point for there to be residential property development activities for the purposes of the tax. Therefore, a company does not need to carry out any construction at all in order to count as an RP developer for the purposes of the tax. This may cause concern in relation to some operations by groups that would not normally be considered to carrying on residential property development but may have a loose connection with it.
Rates and allowance
The rate of RPDT has not been announced yet and remains unknown at x%. x% will be applied to so much of an RP developer’s residential property development profits that exceed its allowance for the period.
One of the continuing frustrations for taxpayers affected by the measure is that the rate has yet to be announced making it hard to plan and budget for the financial period commencing 1 April 2022. The Government intends for the tax to only apply for ten years, and the stated aim is to raise £2bn (£200m per year) in that timeframe.
The April 2021 consultation proposed an annual allowance of £25m below which RPDT would not apply. This concept of a tax-free allowance for all taxpayers is retained in the legislation but the quantum of the allowance has been left blank. It is not clear if the £25m previously stated is now under review and if so whether it will be revised upwards or downwards. If the allowance is not fully utilised in an accounting period, then there is no provision for carry forward of the excess.
The next step
For more information about the new Residential Property Developer Tax, please contact Michael Fitch LLB FCA who is Managing Partner of UHY Hacker Young Fitch and can be contacted at m.fitch@uhy-uk.com. Alternatively, please get in touch with your local UHY adviser.
