Are you ready for the Residential Property Developer Tax?

The RPD has just come into effect. If you’re a property developer, you need to know about it. Let’s find out more.

From April 1st 2022, a new tax is payable by companies (or consortiums) that develop on residential land. It’s called the Residential Property Developer Tax (RPDT), and it aims to raise £2 billion towards replacing unsafe cladding, such as the cladding that contributed to the Grenfell Tower disaster. 

If you are a property developer, you need to understand the new tax and how it affects you. In this article, we’ll look at it in more depth.

What is the RPDT?

The RPDT was announced by Michael Gove, the minister with a remit for housing. It’s a 4% tax payable on a company’s (or group’s) trading profits generated from residential land development. The threshold for the tax is £25 million, so if your annual profit from land development exceeds that figure, you need to pay. The RPDT will be on the statute books for an initial period of ten years, so even if it doesn’t apply to you right now, it could in the future.

The new tax applies to companies and groups of companies that develop residential land. However, non-profit housing companies and individuals forming an LLP are not affected.

When does the RPDT apply?

The RPDT will be applied to your profits (over the threshold) if your company meets the following conditions:

• You develop residential land

  • This condition doesn’t just include building. It also covers other activities, including designing, obtaining planning permission, marketing, managing and sales

  • You still face the tax even if you don’t own the land when the activities are carried out. If you planned them or anticipated them when you stopped owning the land, it still applies

  • The tax applies to conversions but not refurbs

  • RPDT does not apply to build-to-let development projects

• Your company has an interest in land

  • If you have an interest, right or power over land, the tax applies. It also applies if you have the benefit of an obligation or restriction that could affect the value of the land

  • Temporary licenses are likely to be excluded from the tax

• The land is residential

  • The land must be for use as a dwelling once it is developed

  • This includes the gardens or grounds of a dwelling

  • The tax covers land where planning permission is pending or granted for residential development

Exclusions from the RPDT

There are several residential development projects where the RPDT does not apply. These include:

• Care homes for older people or those with disabilities

• Homes for children, the armed forces or emergency services

• Hospitals

• Prisons

• Hotels

• Student accommodation

• Temporary accommodation

What to do next

You pay the RPDT using the same tax return system as corporation tax. You should talk to your accountant to ensure they are across the situation.

If you have any questions about the RPDT, whether it applies to you or the best course of action, you should talk to your specialist property solicitor.

Find out more from Couchman Hanson

At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city-level’ talent and experience, but also friendly and welcoming. Everything we do fits with our values of integrity, honesty and authenticity.

Call 01428 774756 or visit couchmanhanson.co.uk