20 questions on RPDT – A new tax on residential development

Draft legislation has been published for residential property developer tax ("RPDT"). We answer 20 questions on the new tax.

Q1: In two sentences, what is RPDT?

RPDT applies at a rate of 4% to profits of residential property developers from their residential property development activities. There is a £25 million annual allowance and it takes effect from 1 April 2022.

Q2: Why has the government introduced this tax?

The government considers that it has supported the residential market in various ways, including the stamp duty holiday, mortgage guarantee scheme and the cladding remediation fund. It now wants the sector to contribute towards cladding remediation costs.

Q3: Who is a developer?

Only developers are potentially liable for the tax.
A company will be a developer if it has (or, in certain cases, had) a land interest in the site being developed.  A company will also be a developer if:

  • it is part of the same group as a company which holds a land interest in the site; or
  • it holds at least a 10% shareholding in a relevant joint venture company which has a land interest in the site.

In addition, that land interest must be held as part of its trading stock.

Q4: Who is excluded from RPDT?

Only entities that are subject to corporation tax are within the scope of RPDT.  

In addition, non-profit registered providers of social housing (sometimes known as housing associations) and the Welsh, Scottish and Northern Irish equivalent are excluded from being a developer along with their wholly owned subsidiaries.

An exit charge applies in certain circumstances, for example if a non-profit registered provider becomes a profit-making registered provider and has not distributed its assets to a non-profit registered provider within the prescribed time.

Q5: Can you give examples of who is a developer?

The most straightforward scenario is a company owning a site or having an option to acquire a site which is then developed.

Other companies in the same group as a developer will also be developers. Therefore, if they carry out residential property development connected to the site then any profit will potentially be subject to RPDT, even though that group company does not itself have a land interest in the site.

Similarly, if the developer is a relevant joint venture company, a company which has at least a 10% shareholding in the developer will itself be a developer.  Therefore, any profit from that company carrying out residential property development connected to the site will potentially be subject to RPDT.

Q6: Can you give examples of who is not a developer?

The most common example will be third party building contractors and other sub-contractors (i.e., who are not connected to the developer and who do not own shares in the developer). Although these entities will have a building licence to go onto the site, that does not count as a land interest for RPDT purposes.

As mentioned at Q4, non-profit registered providers and their wholly owned subsidiaries are also not developers and outside the scope of the tax. In addition, pension funds and sovereign immune entities are excluded from RPDT as well as build-to-rent investors (see Q7).

Q7: What about property investors who develop?

An investor, such as a build-to-rent property investor, who holds the property as a long-term investment is outside the scope of RPDT, even if they develop the property. Any gain on a future sale of the site will not be subject to the new tax.

If the property was developed by a group company to be sold to an investment company then the group property's trading profits will be within scope.

Q8: Are all development profits above the £25 million allowance subject to RPDT?

No, only profits from the development of residential property. If a mixed-use site is developed the profit from sales of commercial units will not be subject to RPDT.

Q9: What is "development" for these purposes – is it only profits from construction that are subject to RPDT?

No, "development" is widely defined as any activity connected with development, including designing, seeking planning permission, constructing, marketing and managing the development of residential property as well as dealing in residential property.

Therefore, if a developer appoints a group company to perform a project management function and another group company to carry out sales and marketing then the profits of those group companies will be within the scope of RPDT (as mentioned in Q3 and Q5, those group companies will be developers in their own right, being part of the same group as the developer who holds the land interest in the development site). 

Q10: What is "residential property" for these purposes?

Different taxes have different definitions of "residential property" and RPDT has added a new one. This is an important definition as only residential property development profits are subject to the new tax.

Residential property means built or partly built dwellings (for example, houses or blocks of apartments) along with garden and grounds as well as land in respect of which planning permission is being sought or has been granted for the construction of dwellings.

Q11: What about accommodation that could be dwellings but is mainly used for another purpose?

The draft legislation expressly excludes a list of accommodation which are dwellings, but which are designed for use primarily as something else. The list of excluded accommodation includes homes for children, care homes, residential accommodation for hospital staff and hotels. Student accommodation is also expressly excluded, but only if it will be mainly occupied by those taking an educational course and it is reasonable to expect they will occupy for at least 165 days a year.

If the accommodation is designed for use as a dwelling, then it will only be excluded if it is designed for use primarily as student accommodation. Therefore, normal dwellings which happen to be occupied by students will not be excluded.

Q12: What profits are subject to RPDT?

Only profits from residential property development on UK land. Therefore, profit from overseas residential development is excluded from the scope of RPDT
Event fees which are deferred service charges should not be subject to RPDT as they are not profits from development. The explanatory notes to the draft legislation confirm that the intention is not to capture profit from the operational phase of a development, and it is hoped that HMRC will produce similarly helpful guidance on this point.

Q13: Are profits and losses calculated in the same way as for corporation tax?

Not quite. The starting point is to calculate profits in the same way but there are some important differences, including no deductions for finance costs and no use of carried forward losses or surrendered losses (unless the losses arise from residential property development – see Q15). 

Q14: How does the £25 million allowance operate?

The £25 million allowance is annual and applies for each corporate group. For example, if £30 million of profit is made (as calculated for the purposes of the tax) then only £5 million would be subject to RPDT.

It will be important to nominate an allocating member for the group, who will be able to allocate the allowance in the most beneficial way. Otherwise, the allowance will be equally split amongst all the companies in the group which may be inefficient.
Q15: Are there any reliefs against RPDT?

If a residential property developer makes a loss for RPDT purposes (i.e., calculated using the rules mentioned in Q13) then, in broad terms, all or part of that RPDT loss can be:

  • carried forward to later periods and set against future RPDT profits;
  • surrendered to a group company which has current RPDT profits; or
  • carried forward to later periods and surrendered to a group company which has future RPDT profits. 

The rules mirror the normal carry forward rules in that where the RPDT profits are above the £25 million allowance, the amount that is relieved is no more than 50% of the chargeable RPDT profits.

Q16: How does RPDT apply to joint venture companies?

To the extent that the profits of a relevant joint venture company ("JVco") are at or below £25 million, those profits are attributed to its 10%+ shareholders in line with their profit entitlement (even if the profits are not distributed). Any profits of JVco above £25 million will be subject to RPDT in the hands of JVco. Companies that hold at least a 10% shareholding in a JVco are treated as developers for the purposes of RPDT.

For example, a JVco has RPDT profits of £35 million and five shareholders, each holding 20% of the shares. The JVco would pay RPDT on £10 million (after taking into account the £25 million allowance) and each shareholder would be treated as having RPDT profits of £5 million. If one of the shareholders has no other RPDT profits, then it pays no further RPDT. If one of the shareholders is part of a much larger developer group that has RPDT profits of £50 million, then the £5 million of RPDT profit will be added to the £50 million of profit and RPDT will be payable on £30 million (after taking into account the £25 million allowance for that shareholder).   

Q17: What is a relevant joint venture company?

A company which is itself a developer, not a 75% subsidiary of another company and where 75% or more of its shares are held by 5 or fewer shareholders.  

Q18: Are there any other special rules for joint venture companies?

Yes. Losses can be attributed to 10%+ shareholders although an election has to be made by the JVco and shareholder. In addition, where a JVco has a 10%+ shareholder which is not liable to RPDT (other than as a result of being a non-profit registered provider or a wholly-owned subsidiary), the allowance may be reduced.  

Q19: Is there anything else to be aware of?

As might be expected, there are anti-forestalling measures to prevent the acceleration of profits to before 1 April 2022 where the acceleration occurred because of arrangements made on or after 29 April 2021 (the date RPDT was announced). The measures mean that the arrangements are ignored and the profits are treated as arising the accounting period after the commencement of RPDT.

Q20: How much of an impact will RPDT have?

The tax burden on residential development is increasing and this will impact the viability of some schemes. As well as RPDT, the main rate of corporation tax is increasing to 25% from April 2023 and the gateway 2 levy will soon apply to planning consents for tall (above 18 metres) residential buildings.

Although the £25 million allowance will ensure that RPDT should be restricted to the largest developers, the way that RPDT profit is calculated will mean developers with high levels of debt are more likely to breach the allowance.
We expect larger developers to closely monitor the amount of profit generated and if RPDT profits would be greater than £25 million to consider slowing the release of units into the market, especially if lower profits are expected in the following period.

The impact on those affected could increase. The government wants RPDT to raise £2 billion over a decade and said it would increase the rate if the tax was not raising sufficient funds.


PPN 10/23: Taking account of a bidder’s approach to payment in the procurement of major contracts


Dudley Metropolitan Borough Council v Mailley [2023] EWCA Civ 1246


Government issues Leasehold and Freehold Reform Bill


What is build to rent and how does it work?


Calculation and implementation of rent increases for 2024/25


Residential care home use enabled by modification of a restrictive covenant by the Upper Tribunal (Lands Chamber)