The new residential property developers tax: further updates

The residential property developers tax (RPDT) is being introduced with effect from 1 April 2022, with the stated aim of having the private sector contribute to paying for the remediation of unsafe cladding following the Grenfell tragedy. According to a consultation paper published on 29 April this year, the intention is to ensure that only the largest residential property developers are caught and in a way that will raise sufficient revenue to achieve the aggregate revenue target of £2 billion within a decade.  The tax will be charged on companies carrying out residential property development activities in the UK which generate relevant profits in excess of an annual allowance of £25 million.

Following a consultation on the design of the tax, draft legislation was published on 20 September, with the government holding a further technical consultation on the details of the rules. A response to the original consultation was published as part of the Autumn Statement on 27 October.  With key details only just being clarified (including the rate of 4%), the 1 April 2022 introduction date looks very challenging for affected taxpayers.

Companies within the scope of RPDT will be required to identify and apportion profits from their residential property development activities.  The range of activities which fall within the scope of the tax is broad and can include (for example) seeking planning permission, though the company (or a group company) must own or have owned an interest in the land in question in order to be caught.

Some important details have been clarified in the summary of responses.  The consultation paper originally suggested that the RPDT would apply to build to rent activities, but the government confirmed in the response that build to rent will not fall within scope.  That is very welcome news for taxpayers operating in that sector, though the paper also states that this decision will be kept under review, so the relief may be short-lived.

The government has also relented somewhat in its stance on affordable housing, though not as much as many had hoped.  Originally, the proposal was that profits from the development of affordable housing would be within the scope of the tax.  The response document confirms that the government has decided, following representations made by stakeholders, to implement an exemption from RPDT for non-profit registered providers of affordable housing and their wholly owned subsidiaries.