Wilkins SOuthworth

Residential Property Developer Tax Update

The Residential Property Development Tax (RPDT) origins can be traced back to the horrific Grenfell Tower fire of 14 June 2017. Issues found with the cladding and the building led to a UK wide review, highlighting many more buildings with similar problems. Consequently, after protracted legal wrangling, the UK government eventually agreed to cover the cost of remediating cladding issues.

The Residential Property Developer Tax (RPDT) origins can be traced back to the horrific Grenfell Tower fire of 14 June 2017. Issues found with the cladding and the building led to a UK wide review, highlighting many more buildings with similar problems. Consequently, after protracted legal wrangling, the UK government eventually agreed to cover the cost of remediating cladding issues.

Background to the RPDT

Initially, the government set aside a  £5 billion fund to pay for the cost of replacing cladding on the highest risk buildings. As part of further funding initiatives, the UK government introduced the RPDT in February 2021. After two consultation periods, ending on 15 October 2021, the details of the draft bill were announced with the budget on 27 October 2021. The RPDT will come into effect on 1 April 2022 with the intention of raising £2 billion over ten years.

The new tax is designed to impact only the UK’s largest residential property development companies, with circa 30 groups expected to contribute. However, as ever, the devil is in the detail with many concerned that the tax will also impact mid-sized companies.

What is the scope of RPDT?

The original scope of the RPDT has significantly narrowed after the two consultation periods between HMRC and the industry. Only companies eligible to pay corporation tax in the UK, holding land on their trading account, will be subjected to the RPDT under the following broad definition:-

“The property developer, or a related party, must have, or have had, an interest in land.”

This seems relatively straightforward, but there are some exclusions/inclusions to take into account.

Exclusions from scope of RPDT

  • Property investors, with specific reference to those undertaking a build-to-rent model
  • Third-party construction companies contracted to develop residential properties where they have not previously held an interest in the land
  • Not-for-profit operations under the scope of social housing including social landlords, housing associations and registered social providers
  • Care homes and housing for the elderly which incorporate personal care services
  • Residential property specifically designed/adapted for student accommodation and expected to be used for at least 165 days a year
  • Communal dwellings such as hotels, supported housing, prisons and accommodation for the Armed Forces
  • Those outside the scope of UK corporation tax or UK tax-exempt

Inclusions within the scope of RPDT

  • Third-party construction companies contracted to develop residential properties which have previously held an interest in the land on a trading account
  • Retirement villages and other types of housing specifically for the elderly where there are no personal care services
  • Non-profit organisations with commercial, residential property divisions used to raise funds for their charitable purposes

HMRC will be announcing further details on the treatment of “mixed” property developments in due course.

Details of the RPDT

The rate for RPDT has been set at 4% and will be collected in the same manner as corporation tax. This rate is higher than many had expected due to the narrower definition of those companies impacted. Currently, the RPDT is expected to be time-limited to 10 years, during which the government expects to raise £2 billion towards the cost of cladding replacement.

Commencement of RPDT

As of 1 April 2022, UK residential property development activities will be subjected to the RPDT, with stand-alone companies/groups having an initial allowance of £25 million a year. Consequently, UK residential property development companies/groups earning less than £25 million a year will pay no RPDT.

RPDT annual allowance

By default, the £25 million a year allowance will be split between all group entities subjected to corporation tax. However, groups can appoint a nominated company and allocate specific elements of the allowance to different entities of the group. This will allow the more efficient offsetting of UK residential property development profits against the allowance. For reference, the definition of a group entity is the same as that for corporation tax relief, i.e. 75% common ownership.

Joint venture liabilities

The subject of joint venture liability to RPDT appears relatively complex on the surface but is simplified by looking at the various elements in isolation.

In relation to RPDT, the conditions for a joint venture company are as follows:-

  • Classified as a residential property developer
  • Investor holds at least 10% of the joint-venture share capital OR entitled to at least 10% of the profits
  • The joint venture is not a 75% owned subsidiary of another group
  • There are no more than five shareholders who control at least 75% of the share capital OR are entitled to a minimum 75% of profits, where there is no ordinary share capital

Each joint-venture residential property development company is also entitled to a £25 million RPDT allowance. To avoid double taxation, joint-venture profits over £25 million will be subjected to the 4% RPDT with no further liability for shareholders. Joint-venture qualifying profits up to £25 million will not incur any direct RPDT tax. However, each joint-venture shareholders share of profits would be added to their group residential property profits.

Example of joint-venture RPDT:-

If a residential property developer reported profits of £25 million, then in theory, they would not be liable for any RPDT. However, if the developer also held a 20% share of a qualifying joint venture company, which also reported profits of £25 million, this changes the scenario. As the joint-venture company did not exceed the annual RPDT allowance, there was no additional tax to pay at the joint-venture level. Consequently, the developer’s share of the joint-venture profits, in this instance £5 million, would be added to the group qualifying profits. This would then take them over the £25 million year threshold with an RPDT liability of 4% on £5 million.

As a side note, if one or more joint-venture shareholders are outside of the scope of RPDT, then the annual allowance would be reduced in line with their shareholding.

Adjusted residential property development profits

While much of the detail associated with RPDT is the same as corporation tax, there are some differences to be aware of:-

  • Tax liability is based on residential property development profits/losses only, as opposed to overall group profits, which may include non-residential property development activities
  • There is no provision to use allowances concerning capital expenditure
  • Non-residential property development losses/relief adjustment to RPDT profits are prohibited
  • The cost of finance can’t be offset against qualifying residential property development profits

Even though RPDT was introduced to target the larger residential property development companies in the UK, the exclusion of interest charges should not be overlooked. This will bring heavily indebted property development companies, which would typically have offset interest charges against profits, within the scope of RPDT.

Under the draft legislation, there is the opportunity to claim relief for prior RPDT related losses against current liabilities. However, due to various conditions and restrictions associated with claiming relief you should seek advice from your accountant.


While HMRC did listen to feedback during the two consultation periods, there is still concern regarding various elements of RPDT. For example, removing loan interest relief when calculating residential property development profits could bring many indebted companies within the remit of the new tax. On the plus side, HMRC has agreed to allow various costs relating to system changes and staff training to be included as part of group expenses for corporation tax.


Chris Wilkins FCCA is a Chartered Certified Accountant, Registered Auditor and the managing partner of Wilkins Southworth based in Barnes, South West London

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