In late September, the government published draft legislation and initiated a technical consultation on RPDT, following on from an initial consultation in April this year. The final details of the tax are expected to be announced in the autumn Budget on 27 October 2021.
Why is the government proposing to introduce RPDT?
In the wake of the Grenfell tragedy, the government has agreed to remove unsafe cladding for leaseholders in all residential buildings 18 metres (6 storeys) and over in England. It is anticipated that RPDT will raise around £2 billion within the next decade, which the government hopes will partly cover these remediation costs (currently estimated at £15 billion).
Who will be liable to pay RPDT?
Companies will be liable to pay RPDT if they pay corporation tax.
They must also engage in residential property development activities. These are activities which meet two tests:
- They must be carried out on, or in connection with, land in the UK in which the developer has or had an interest
- They must be carried out for the purposes of, or in connection with, the development of residential property
For the purposes of RPDT, the government defines "residential property" as “a house or flat that is considered as a single residence, generally together with the grounds and garden or any other land intended for the benefit of the dwelling.”
Where land is being developed or undergoing a change of use, “residential property” will also include:
- buildings suitable for use as a dwelling but not yet used as such
- existing buildings being adapted, restored, or marketed for domestic use
- undeveloped land where a residential building is or will be constructed
- undeveloped land undergoing a change of use, for which planning permission has been obtained
It is likely that certain communal dwellings will not be classed as “residential property” for the purposes of RPDT, including hotels, prisons, monasteries and nunneries, boarding schools, residential accommodation for the armed forces, residential homes for children and the elderly, and student accommodation.
What will be payable under RPDT?
RPDT is proposed to be levied on profits connected to residential property development activities over a certain allowance. The level of this allowance and the rate of the tax have yet to be decided. Both are expected to be finalised in the autumn Budget.
When will RPDT be payable?
RPDT is expected to be levied on profits arising in accounting periods ending on or after 1 April 2022, with profits from periods straddling that date being apportioned.
It is likely that the tax will be payable following specific events, such as the sale of new homes or land with the benefit of planning permission.
Why is the government proposing to tax developers specifically?
The government recognises that many developers have had limited involvement in the development of high-rise buildings, and that many have already taken steps to cover the costs of remediation where applicable. Even so, certain residential developers are deemed to be operating in a market that will benefit from the substantial amount of funding offered to address building safety defects. The government therefore believes it is right to seek contributions from certain developers in the residential development sector to help fund its remediation costs.
What are the implications for developers?
Many residential property developers are likely to be faced with increased tax bills as a result of the new legislation. Given that the rate of the tax has yet to be announced, it is difficult to predict its full impact. Nevertheless, RPDT may present a need for certain developers to consider the viability of certain developments.
What has been the response to the proposed legislation?
Feedback on the legislation from within the industry has stressed the need to balance the interests of developers and other parties, including the residents of high-rise buildings.
Concerns have been raised about the wide-reaching implications that RPDT may have on the viability and delivery of new homes, particularly in the current context of proposed regulatory changes.
Concerns have also been raised regarding the levying of the tax on a speculative basis, for example, where planning permission for residential building is granted, but where development is never actually undertaken.
Where can I read more about the proposed legislation?
You can read the draft legislation here and the explanatory notes here. The April consultation paper is also available, here.
Can I give feedback on the proposed legislation?
The government is seeking views on the draft legislation for a technical consultation running till 15 October 2021. Comments can be sent to [email protected]
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