New tax on residential developers… as always, the devil will be in the detail

The government proposed to announce in its Autumn Budget the rate of the new Residential Property Developer Tax. The RPDT will be charged on the profits made by companies carrying out residential development and activities in the UK from April 1 2022. The initial draft legislation was published on September 20 and the government consultation on the details ended on October 15. There are still areas which need ironing out, such as how the profits should be calculated and how developments for the purpose of renting – not sale – should be dealt with. Unfortunately, the opportunity to join in any consultation is unusually short and the proposed date of April 1 2022 for full implementation is very close. Therefore there may be further extensions soon. The activities of development are clarified as being activities carried out on or in connection with land in the UK in which a developer has an interest. Part of the consultation involved various models of calculations and computations of how the RPDT profits would be considered. The legislation has been drafted to state that the profits are calculated on the activities carried out by a ‘developer’ rather than activities carried out by a ‘company’. This is with the intention to avoid any potential loopholes where companies employ separate developers who are in fact connected with the company or vice versa. This would mean that companies within the scope of the RPDT would have to identify, declare and apportion profits from their residential property development activities and would not be permitted to offset any finance costs from their profits.
With respect to collection and management, the RPDT will be applying similar rules to the Corporation Tax rules and will use many of the same definitions. This is with the intention of keeping the new tax simple to follow for those who are already familiar with the Corporation Tax rules. We will need to await the details of the Autumn Budget Statement to emerge for a more comprehensive explanation of the RPDT and how this will impact new developments, developers,
builders, and affordable housing incentives.