Residential Property Developer Tax
Published 27 October 2021
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Who is likely to be affected
Companies or groups of companies undertaking UK residential property development with annual profits in excess of £25 million.
General description of the measure
This measure will introduce a new 4% tax which will apply to the largest residential property developers on the profits they make on UK residential property development.
Policy objective
The tax forms part of the government’s Building Safety Package aiming to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market. Given the significant costs associated with the removal of unsafe cladding, the government believes it is right to seek a fair contribution from the largest developers in the residential property development sector to help fund it.
Background to the measure
The new tax was announced by the previous Secretary of State for Housing, Communities and Local Government, Rt Hon Robert Jenrick MP, on 10 February 2021.
A consultation on the design of the new tax was launched on 29 April 2021 and ran until 22 July 2021.
A further technical consultation on the draft legislation was launched on 20 September 2021 and ran until 15 October 2021.
A response to the consultation has been published at the Autumn Budget 2021.
Detailed proposal
Operative date
The tax will apply from 1 April 2022 to profits arising from residential property development recognised in accounting periods ending on or after that date.
Where a company’s accounting period straddles 1 April 2022 the profits of the accounting period will be time apportioned to determine amounts falling before and after the start date.
Current law
The tax on profits arising from residential property development is new legislation. The calculation of profits charged to the tax is based on the existing rules for Corporation Tax. The tax will be reported and paid using the same return and systems as for Corporation Tax and so the administrative legislation in Schedule 18 to the Finance Act 1998 will apply.
Proposed revisions
Legislation will be introduced in Finance Bill 2021-22 to establish a Residential Property Developer Tax (RPDT).
The tax will apply to companies with profits arising from UK residential property development but will only apply if the group’s profits from that activity exceed £25 million per year. This will be achieved by providing a £25 million annual allowance for each group to use against their profits for a year. Where this allowance is not exceeded, there will be no need to report residential property development profits. The computation of profit will start from the same basis as for Corporation Tax before an adjustment is made to identify only the profits that relate to the residential property development activity. There will also be a restriction in respect of finance costs.
The £25 million allowance can be allocated by the group between its companies, profits in excess of this allowance will be taxed at a rate of 4%.
Any tax due will be reported and paid as part of the company’s Corporation Tax return.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| — | +200 | +215 | +225 | +235 | +250 |
These figures are set out in Table 5.1 of Autumn Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2021.
Economic impact
This measure is not expected to have any significant macroeconomic impacts. Any impact on house prices and transactions is expected to be negligible, as new builds account for a small share of overall market transactions.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
This measure is not expected to directly impact on individuals as it only affects businesses. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The tax is not expected to directly impact individuals or groups sharing protected characteristics, as it will be a tax levied on corporates.
The tax is not expected to impact house prices. If there were an impact it would fall to individuals who are buying residential property, which is expected to be in line with the existing distribution of home ownership. The measure is not expected to impact on this distribution for any protected group.
Impact on business including civil society organisations
The measure is expected to have a negligible operational impact for a small number of large groups undertaking residential property development in the UK. It has been agreed that the tax will be delivered as an extension of Corporation Tax and therefore reported and paid in the same way as Corporation Tax, minimising the impact on the affected businesses as most of them already understand how to compute profits for the purposes of Corporation Tax. These groups will be required to calculate annual profits arising from UK residential development activity, adjust the profits to take account of allowances and other deductions, then apply the RPDT rate to determine the tax due.
One-off costs will include familiarisation with the new tax and could also include upskilling or training staff, as well as updating software to reflect the new tax. Continuing costs could include keeping records to support the computation of profit arising from residential property development and undertaking additional valuation of residential profits to accurately determine profit calculation. A further continuing cost will be providing minimal additional information each year as part of the normal Corporation Tax return.
Guidance will be published to advise those affected of the changes, and to provide support to assist their understanding.
This measure is not expected to impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will incur costs of up to £8.65 million to update the Corporation Tax return and supporting systems so that the new tax can be reported and paid, as well as staffing costs to monitor and administer the new tax.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
RPDT will be monitored through information provided by customers both when filing their Corporation Tax returns and making payments that include RPDT. The revenue raised from RPDT will be recorded in HMRC’s annual tax receipts statistics publications.
The government monitors the tax system continuously and will keep the tax under review.
Further advice
If you have any questions about this change, please contact the Residential Property Developer Tax team by email: rpdt.mailbox@hmrc.gov.uk.