Nyree Applegarth, Head of Property Disputes, welcomes the introduction of the Residential Property Developer Tax to help combat unsafe cladding.
I have written extensively about the unsafe building and cladding scenario that still affects so many residential buildings in the UK five years after the horrific fire at Grenfell and the steps the government have taken to try and expedite remediation works as soon as possible.
I was, therefore, pleased to see that with effect from April 1 2022 the Residential Property Developer Tax (RPDT) has been introduced. This is part of a package of measures to expedite the remediation of unsafe cladding in multi-occupied residential buildings.
The relevant legislation can be found in part 2 of the Finance Act 2022 and, in particular, section 33 which provides that “a sum equal to 4% of the residential property developer profits for an accounting period of a residential property developer, so far as exceeding the developers’ allowance for the period, is to be charged on the developer as if it were an amount of corporation tax chargeable on it.”
A company, therefore, only has to pay the charge if they are also liable to pay corporation tax. However, if the liability is triggered then tax can be charged at a rate of 4% on profits arising from residential property development in excess of the annual allowance of £25 million.
A company is classed as a residential property developer if:
- (a) the company carries on residential property development activities or
- (b) the company, or the company together with any other company which is a member of the same group as it, has a substantial interest in the relevant joint venture company.
The legislation has been drafted widely to capture as many development activities involving residential properties as possible and includes designing, seeking planning permission, instructing or adapting a marketing plan and management. The tax applies from April 1 2022 to profits recognised in accounting periods and then or after April 2022 1 with an apportionments for periods straddling the date.
It is, therefore, clear that it is not confined to developers who have constructed buildings in the past, nor does it apply retrospectively only, but in fact applies for any residential property development that is undertaken as from April 1 2022.
There are some exclusions from residential property developer tax which specialist tax advice should be sought in relation to but, interestingly, the tax would not be triggered where property is held for investment purposes.
