New Residential Property Developer Tax: Key Information
The prospect of a new tax is generally, to most, not something to get excited about.
However, the new Residential Property Developer Tax (RPDT) comes after the disastrous Grenfell Tower fire, and so as taxes go, this is likely to be regarded as one of the good ones.
It is also unique in its approach; as well as being very sectoral in its target, it is also proposed to be time-limited.
The tax has a £2bn goal to raise before the time limit expires, and the government aims to reach this within a decade of its introduction (currently scheduled for 2022), with a consultation process currently ongoing.
Aims of the consultation process for the RPDT
The intention of the consultation process, running from 29th April 2021 until 22nd July 2021, is to ensure the tax:
- Only applies to the largest residential property developers
- Only affects these developers in a way that is proportionate to their profits
- Raises sufficient revenue to achieve its target of £2bn within a decade
- And lastly, but importantly, does not unfavourably distort the housing market
How will the consultation process aim to address the considerations above?
The consultation process seeks views on the design, implementation and administration of the new tax. It focuses mainly on the following areas:
- The definition of residential property and development activity, such as dwellings excluded from the tax
- Two potential models for collecting the tax
- Approaches to setting the rate and allowance
- Interaction with the new Gateway 2 Developer Levy
- Reporting, payment and compliance
- Potential impacts of the tax, including on housing supply and the affordability of housing
What could the tax look like?
There are two potential models for the tax, a company-based approach, and an activity-based approach:
1. Model one: a company-based approach
If model one is deemed most appropriate, RPDT would apply to all companies that carry on more than an insignificant amount of residential property development activity.
In this model, the tax would be applied in a similar way to corporation tax, where the company (or group of companies) pays a rate of RPDT that is dependant on the whole of their profits.
Essentially, the tax would be charged on profits arising from all activities, as opposed to just the profits relating to residential property development. However, the definition of what constitutes an insignificant amount is yet to be defined and will likely be a key part of the decision process for which model the RPDT is based upon.
2. Model two: an activity-based approach
Model two is based on charging RPDT on just the profits gained from activities related to residential property development.
This would either be calculated:
2a) Using corporation tax principles, where liability would sit with individual companies within a group. There could be a streamlined administrative process under which a single group company could make payment and file returns on behalf of other group companies. The responsible company could either be designated in the rules or the group allowed to nominate the company.
2b) Using UK GAAP principles, with all profits gained from residential property development activities calculated as a separate division. The tax would then be applied to just that division. For group companies, this would require a separate account of any profits attributable to residential property development. The default position under this model would be for the parent company to be responsible for calculating and paying these obligations for its subsidiaries. For stand-alone companies, there will likely be no material difference between this model (2b) and 2a (above).
A full summary of the impacts of the tax, as well as the questions posed during the consultation period, can be found here.
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