Residential property developer tax: Draft legislation published and technical consultation launched

The Autumn Budget on 27 October will see the government announce the full design and rate of the new residential property developer tax (referred to as the RPDT). 

The RPDT will be charged on the profits of companies carrying out residential property development activities in the UK and will apply from 1 April 2022.  The government consulted on the design of the tax earlier this year (our previous update is here).

Draft legislation was published on 20 September (available here) and the government is now holding a further technical consultation on the detail of the rules, which is open until 15 October.

There were a few hot topics identified in the previous consultation, such as how profits falling within the scope of the tax should be computed and the treatment of build to rent activities.  While a number of important issues have been addressed in the legislation, there is still a lot outstanding and the window for consultation on the draft legislation is unusually short.  The 1 April 2022 introduction date still looks extremely ambitious.

Filling in some of the blanks

The legislation sets out more of the detail, including some important definitions.  In particular, activities are only caught if they are carried out on or in connection with land in the UK in which the developer has (or had) an interest.  This provides some welcome clarity.

As part of the original consultation, a number of different models to compute RPDT profits were under consideration.  The legislation has been drafted using an activity-based, rather than company-based, approach, and is largely based on corporation tax profits, which will be welcome news to most affected taxpayers.  This requires companies within the scope of RPDT to identify and apportion profits from their residential property development activities.  No finance costs can be taken into account in identifying RPDT profits.

Helpfully, it appears that the tax will largely apply the corporation tax rules in respect of collection and management of the tax and the legislation also draws on existing definitions and concepts, which will make it easier to apply for taxpayers already familiar with corporation tax.

There are still several areas which the draft legislation has not yet covered. In particular, we will need to wait for the Autumn Budget to see how the RPDT interacts with affordable housing and build to rent developments.

Next steps

A full report on the consultation will be published at the Autumn Budget. Once formally announced by the Chancellor at the Autumn Budget, legislation for the RPDT will be included in the 2021-22 Finance Bill.

For further information on any of the above please contact Helen Coward.