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Details emerge of the residential property developer tax

Posted: 20/07/2021

Following the Secretary of State for Housing, Communities and Local Government’s announcement about an improved building safety regime, the Government published a consultation about a new residential property developer tax (RPDT). While the purpose of the consultation is to gather views on the design, implementation, and administration of the RPDT, the publication fleshes out some of the Government’s initial thoughts on the tax. We have summarised the proposals below.

To whom will the tax apply?

Single companies or groups will be affected by the RPDT for an accounting period if they:

  1. carry out UK residential property development activities; and
  2. generate profits that are higher than the annual allowance available to them in the relevant accounting period.

What is meant by residential property?

Residential property means a house or flat that is a single residence. It includes the grounds and garden as well as any other land intended for the benefit of the dwelling.

The Government is proposing to exclude the following properties from the meaning of residential property:

  • hotels;
  • residential homes for children or the elderly;
  • hospitals and hospices;
  • purpose-designed supported housing with communal facilities that provide accommodation with care and/or support for the homeless, rough sleepers, people with a disability, drug or alcohol dependency or poor mental health, people with a learning disability and/or autism and older people;
  • residential accommodation for members of any of the armed forces;
  • boarding schools;
  • monasteries, nunneries or similar establishments; and
  • prisons

What are development activities?

The RPDT will apply irrespective of whether the development activities are performed by the entity itself or third-party contractors.

The Government identifies several phases for a development project:

  • acquisition of an interest in land;
  • pre-planning advice and investigation;
  • design and scoping;
  • planning application and stakeholder engagement;
  • construction; and
  • marketing and sales.

The main target of the tax is the development of residential properties in the UK for either sale or rental as individual dwellings. This not only includes construction, but also the conversion of existing buildings.

What is the fundamental design of the tax?

The Government has set out two alternative models on which to calculate the tax base.

The first method is to determine the profit as computed for corporation tax and then make an adjustment to limit profit to only the residential property development activity.

The second method requires the profit to be calculated under normal accounting principles on a divisional basis. Accordingly, anything unrelated to UK residential property development activity can be removed.

Can a company or group subject to the RPDT use its losses to reduce its tax liability?

The Government has indicated that losses incurred before the introduction of the tax should not be allowed to reduce profits liable to the RPDT. The Government is open to views on whether losses that are incurred from the introduction of the tax could be used to reduce the tax base.

Any losses incurred by the group relating to activities that are not residential property development activities should not be able to be used to diminish RPDT profits. This means that any group relief from out-of-scope companies should be added back into total profits to make sure that losses from unrelated activities do not lower relevant profits liable to the RPDT.

How much will the annual allowance be?

The tax is aimed at large businesses only. Accordingly, the RPDT will only apply to the profits of a company or group that exceeds a group-wide annual allowance of £25 million. A company or group’s share of profits in development carried out via a joint venture could be included for the purposes of the allowance and subject to the tax.

How much is the tax rate?

The Government has yet to determine a rate of tax.

When will the tax apply?

It is expected that the tax will be introduced on 1 April 2022 and remain in place for 10 years. However, if the RPDT fails to raise at least £2 billion over that timeframe, the Government would consider extending its duration.

Are there reporting requirements?

Those liable to the tax will need to self-assess and notify HMRC of their liability within timescales and frameworks akin to corporation tax. Any late filing of a return will result in a penalty charge.


The Government argues that industry should contribute a “fair share” (in part via the RPDT) towards its Building Safety Package to tackle unsafe cladding because large businesses will benefit from Government funding to remediate defects. These businesses have also benefitted from several of the Government’s recent measures, such as the mortgage guarantee scheme and the SDLT holiday.

By contrast, many in the real estate sector would describe the RPDT as disproportionate on investment business models. Not only have several developers already taken independent measures to pay remediation costs, but also many developers rarely develop high-rise properties. The sector would argue that the measures will stymie standards and the professionalisation of the rental market in the UK.

It could be argued that the relatively nascent UK build-to-rent market as well as purpose built student accommodation assets should be excluded from the RPDT. As things stand, a notional tax charge is incurred on the value added by the property development less the costs of development within the group. This would be the case even where there is not realised profit. In effect, it would be a dry tax charge.

The Government has said it will review the above considerations and input from industry after the consultation closes on 22 July 2021. The Government intends to include the RPDT in the 2021-22 Finance Bill. There will also be a consultation on the policy design of the proposed gateway 2 levy relating to higher risk residential buildings, which could overlap with the RPDT.

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