RPDT20445 - The charge to RPDT: reliefs: restrictions on RPDT relief - extended example
Restriction on RPDT loss relief – extended example of where gross profits are above available allowance
See RPDT20440 for the introduction to this rule.
- M Ltd is an RP developer that has RPD profit of £100m in the accounting period (factor A in FA22/S38). It has available a full annual allowance of £25m (factor Z in FA22/S42(3).
- M has a 50% share in a loss-making joint venture and M’s share of that loss is £10m, and the appropriate election is made (factor B in FA22/S38).
- M has carried forward losses of £20m to set against its profits (factor C in FA22/S38).
- Group member N Ltd makes a loss in the same accounting period and surrenders £30m of that to M (factor D in FA22/S38)
- Group member O Ltd has carried forward losses and surrenders £40m of that to M (factor E in FA22/S38).
Absent any restriction, M’s RPD profits are A £100m – B £10m (see note below) – C £20m – D £30m – E £40m = £nil.
FA22/S42(3) restricts the amount of carried forward losses that can be used according to the formula
(A + B – Z) / 2 – D = (£100m - £10m – £25m) / 2 – £30m = £65m / 2 – £30m = £2.5m
The £2.5m of carried forward losses that can be used are set primarily against M’s own losses, see paragraphs 9(3) and 17(3) of FA22/Sch7.
M’s RPDT profits are therefore A £100m – B £10m – C £2.5m – D £30m = £57.5m.
Less the allowance leaves £32.5m charged at 4%.
The total amount of losses available for M to carry further forward is now M’s own losses £20m – £2.5m = £17.5m plus losses surrendered by O of £40m, giving a total of £57.5m.
FA22/S45(5) reduces this by the amount of M’s allowance for the year of £25m, leaving a balance of £32.5m. This becomes factor C for M’s next accounting period.
*Note - shown as “- £10m” here but in terms of the statutory formula it is adding a negative number. See meaning of “B” in FA22/S38
RPDT01100 contains a general introduction to RPDT and a list of abbreviations used.