Residential property developer tax

Introduction

Residential property developer tax (RPDT) was introduced by Part 2 of Finance Act 2022 with effect from 1 April 2022. The objective of the tax is to recoup, from the largest property developers, the significant costs borne by Government associated with remediating unsafe cladding. RPDT is intended to raise at least £2bn over a ten-year period.

An amount equal to 4% of residential property developer profits for an accounting period of a residential property developer, so far as they exceed the developer’s allowance, is charged to tax as if it were corporation tax.

Residential property developers

A residential property developer is defined as a company carrying on residential property development activities, or a company which (alone or in a group) has a substantial interest (10% or more) in a relevant joint venture company. Non-profit housing companies are excluded from being a residential property developer.

Residential property development activities are defined as activities carried on in connection with land in the UK, in which the company has an interest, for the purposes of development of residential property. Types of activities are defined as including dealing in residential property; designing it; seeking planning permission in relation to it; constructing or adapting it; marketing it; managing it; or any activities ancillary to any of the other activities.

Residential property means a building used as a dwelling, including associated gardens or grounds or land that subsists for the benefit of the dwelling. Land which holds planning permission in respect of anything defined above is also included. The legislation though lists several types of buildings which are excluded from this definition such as hospitals, hotels, and student accommodation.

Residential property developer profits

Residential property developers profits (or losses) of an accounting period are defined using the formula

Where:

“A” is adjusted trading profits or (losses),

“B” is joint venture profits or (losses) attributable to the developer,

“C” is allowable RPDT loss relief,

“D” is allowable RPDT group relief claimed, and

“E” is allowable RPDT group relief for carried forward losses claimed.

These amounts are determined by reference to the RP developer’s accounting period.

Adjusted trading profits and adjusted trading losses are defined as the amounts that would be trading profits or losses of the RP developer for corporation tax purposes but with certain amounts ignored.

Amounts may be apportioned on a just and reasonable basis where relevant, such as for mixed-use (residential and non-residential) developments.

Attributable joint venture profits or (losses) are RPD profits of a relevant joint venture company to the extent that they do not exceed that company’s allowance and apportioned in accordance with distribution rules. A joint venture for these purposes is an RP developer who is not a 75% group member but is 75% owned by 5 or fewer persons.

Where residential property developer losses arise, they may be carried forward to set off against future residential property developer profits of the company or surrendered to other RP developers within the group.

Relevant maximum

The sum of amounts deducted as C and E – relief for RPDT losses carried forward, either of the company or claimed as group relief – may not exceed a relevant maximum. Legislatively, this relevant maximum is calculated in one of two ways.

Case 1 – Where A+B does not exceed the RP developer’s allowance; the relevant maximum is equal to A+B (such that loss relief can at most reduce profits to nil).

Case 2 – Where A+B exceeds the RP developer’s allowance; the relevant maximum is calculated as:

Where A, B and D have the same meanings as above and Z is the RP developer’s allowance. If the formula gives a negative result the relevant maximum is nil.

The legislation here includes a rule that gives the unusual result of reducing RPDT losses carried forward even where they have not been offset against profits, in contrast to similar provisions for the carried forward loss restriction of CTA 2010 Part 7ZA. This applies for Case 2 above, where under s42(5) losses are treated as used up to the extent that the allowance reduced profits. HMRC guidance at RPDT20440 provides worked examples of this.

Losses remaining following the application of the relevant maximum rules are carried forward.

Allowance

A group-wide allowance of £25 million is available to RP developers for each accounting period, pro-rated where that period is less than 12 months. RPDT is charged on profits only to the extent that they exceed this allowance.

Submission

HRMC are yet to publish the required update to the CT600 and so it is not currently possible to submit a company tax return for a company within the charge to RPDT. HMRC have said they plan to update the CT600 2023 with a new supplementary page CT600N to capture details of RPDT (referred to at RPDT20520).

Alphatax approach

Alphatax has been updated to support residential property developer tax in the upcoming release version 22.0.

A new flag Is the company a residential property developer? has been added to the Standing data input statement for periods ending on or after 1 April 2022. Once set, this enables the Residential property developer tax statement located in the Corporation tax computation section of the contents tree. This statement will derive RPDT profits by bring in tax adjusted profits or losses from any relevant trade in the computation. Inputs are then provided for joint venture profits and losses, or any group relief claims made. Losses will be automatically calculated and offset to arrive at the taxable residential property developer profits, after considering the group-wide allowance.

Full details of the residential property developer tax calculation will be presented in report mode, including the application of the relevant maximum and a memo of any losses carried forward if relevant. Where taxable residential property developer profits arise, RPDT is calculated at 4%.

The resulting tax will flow onto the corporation tax report and will form part of any liability for the period, including quarterly instalment payments.

The allowance available to the company is derived from inputs on the Residential property developer allowance sub-statement. This statement provides options for the £25 million allowance to be held by the allocating member and allocated out to group companies.

The Group and tax accounting modules have been updated to reflect this additional tax charge. Where residential property developer losses carry forward, they will default to a deferred tax provision rate of 4%. The Group module also includes a new Group allowance allocation statement.

 

 

 

AUTHOR: Jonathan Tucker

JOB TITLE: Tax Software Developer

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