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  • Residential Property Developer Tax - how it will work

Residential Property Developer Tax - how it will work

29 September 2021

Original content provided by BDO United Kingdom

Following on from the HM Treasury consultation, on 20 September 2021 the UK government released draft legislation which revises many of its original proposals for this new tax. 


Residential Property Developer Tax (RPDT) is to apply from April 2022, and has the policy objective of requiring residential property developers to pay additional tax to fund the cost of remediating cladding issues which has been and will be borne by the government. HM Treasury has been clear throughout the consultation process that it sees RPDT as ‘time limited’, with the goal of raising c. £2bn of revenue over a 10 year period. 

Although it is the government’s intention that only the “largest” residential property developers will be brought within the charge to RPDT, the original consultation document cast a “wide net”, and was originally going to bring both residential units built for sale (trading) and for rent (investment) into the charge to the tax, as well as asset classes such as student accommodation, retirement homes and care homes where personal care is not provided.

Narrowed scope

In a very positive sign that HM Treasury and HMRC have taken on board feedback from industry and professional groups, the draft legislation greatly narrows the scope of RPDT as follows:

RPDT will apply to profits arising from the development of residential property only when the land/property is held as trading stock by the developer or a related entity. Property investors are currently excluded.

The new tax will apply to companies only, although there is no restriction on the residence of the company. The developer, or a related party, must have, or have had, an interest in land. This excludes the profits of third party construction companies contracting to develop residential property from RPDT in cases where they have not previously held an interest in the land. The profits of a charitable trade carried out by a charitable company are specifically excluded. 

The draft legislation includes a number of carve-outs from the definition of “residential property”, such as for ‘communal dwellings’, ie hotels, supported housing providing care/support for vulnerable groups, accommodation for members of the armed forces, prisons, etc. This list also includes purpose designed/adapted Student Accommodation, when it is wholly or mainly for those in education, and such accommodation will be used by such persons for at least 165 days in a year.

However, the exclusion for care homes and other housing for the elderly extends only to such facilities that include personal care. Retirement villages and other housing for the elderly that do not include personal care are currently within the charge to RPDT.

Specific details

The tax is set to apply from 1 April 2022 to the profits of UK residential property development activities. Administratively, RPDT is now to align with the corporation tax rules, and is in effect akin to a corporation tax surcharge on the trading profits of residential developments. However, the draft legislation remains silent on the rate of RPDT: this may be announced in the autumn Budget.  

Standalone companies and groups will have an “allowance” available at the start of the accounting period to reduce their liability to RPDT. The consultation document has set the allowance at £25 million, but the draft legislation remains silent on this point: again, the level of the allowance may be confirmed in the Budget.

The administrative arrangements for the allocation of the allowance between group companies subject to RPDT will work in a similar manner to the Corporate Interest Restriction (“CIR”) allowance procedure, including electing a nominated company and the preparation of an allowance allocation statement. The definition of a group is effectively the same as the definition for corporation tax group relief purposes (75% common ownership).

Calculation of profits and losses under RPDT

RPDT profits or losses are to be prepared in line with corporation tax principles, with the following key amendments:

  • Only profits and losses relating to RPD activities (including those of interests in JV developments) are brought into account, other profits and losses are to be excluded
  • No allowances may be claimed in respect of capital expenditure
  • No claims may be made under loss relief, group relief or carried forward losses for losses not arising from RDP activities (see below)
  • No debits or credits may be taken into account with regard to loan relationships or on the fair value movement of derivative contracts.

The exclusion of interest expenses from this calculation is likely to have the biggest impact - expanding profits liable to RPDT and, therefore, the number of groups subject to RPDT.

Loss relief

The draft legislation includes the ability to claim relief for losses arising from RPD activities arising in prior periods against current period profits, and a form of group relief between entities subject to RPDT within the same group for both current period and carried forward RPDT losses.  However, there are a number of restrictions that could serve to defer the utilisation of carried forward losses against RPDT profits in later periods.

In line with corporation tax rules, current year RPDT group relief claims are not restricted. 

Payment dates

The draft legislation states that RPDT is to be aligned with corporation tax payment deadlines, which, therefore, will include the recently introduced ‘super-QIPs’ regime that requires all corporation tax payments to be paid before the end of the year.   


The current form of the legislation is a significant departure from the original proposals. The changes will be welcome news for those in the build-to-rent sector, although there is uncertainty as to whether this exclusion will remain in the long term.

Businesses in the residential property sector should keep up to date with RPDT developments, and we will update this page as the legislation evolves. In the meantime, if you have any questions on how RPDT will affect your business, please get in touch with us.

Read the updated legislation