Out-Law Analysis 4 min. read

Proposed new UK residential property developer tax

The UK government is proposing a new time limited residential property developer tax (RPDT) from April 2022 on the profits of the largest residential property developers.

The tax is one of the measures designed to contribute to the costs of the government’s plan to remove unsafe cladding from leased residential buildings. The government has not yet set a rate for the tax, making it difficult to understand the immediate impact on the sector, although it is looking to raise at least £2 billion from the tax over the next decade.

There are a number of problem areas with the proposals as drafted including how they would apply to student accommodation, build-to-rent (BTR), housing associations, tax exempt investors and real estate investment trusts (REITs). For example, except for charities which will not pay RPDT on profits which would be exempt from corporation tax, there is no indication that entities currently exempt from corporation tax such as local authorities or pension funds, or tax transparent funds in which they invest, will not have to pay the tax.

A consultation on the proposals closes on 22 July 2021.

Outline of the proposals

A company or group will be within the scope of RPDT for an accounting period if it undertakes UK residential property development activities and makes profits over an annual allowance of £25m per group. It is not yet clear what the rate of tax will be.

The measure of profits which attract the tax is calculated without deduction for finance costs – even, it seems, third party financing – so the £25m threshold may not be what it seems

Groups exclusively carrying on activities as a third-party contractor in relation to residential developments of an unconnected developer, commercial development or residential development of land outside of the UK would not be subject to RPDT.

It is important to note that RPDT is not a supplementary corporation tax, but a different system. In particular, the measure of profits which attract the tax is calculated without deduction for finance costs – even, it seems, third party financing – so the £25m threshold may not be what it seems.

Residential property will be defined 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. However, where property is under development or undergoing a change of use, it will also include:

  • any building that is suitable for use as a dwelling, where it is not so used at the relevant time;
  • any existing building that is being adapted, restored to, or marketed for, domestic use; and
  • undeveloped land where a residential building is being or would be constructed on it.

The government considers that any profits made in relation to the development of affordable housing should be in scope of the tax. Activities of housing associations benefiting from charitable exemption from corporation tax would not be subject to RPDT. However, taxable development companies within housing association groups could also be taxed, since a form of ‘gift aid’ to the parent charity does not appear to be part of the system.

The government intends to exclude hotels, residential homes for children or the elderly, hospitals and hospices, residential accommodation for members of the armed forces, boarding schools, monasteries, nunneries and the like and prisons. It also intends to exclude purpose-designed supported housing with communal facilities providing accommodation with care and/or support for the homeless, rough sleepers, people with a disability, drug or alcohol dependency, poor mental health, people with a learning disability and/or autism and older people.

Retirement properties

Residential care homes will be excluded from RPDT, but senior living homes may be subject to the tax.

Where communal facilities and services are provided the government plans to draw a distinction between where care and allied service functions, such as catering and cleaning, are provided as an integral part of a communal dwelling, as in a residential home; and retirement communities that offer accommodation and communal facilities for older people who are not reliant on care provision. The former situation would be exempt from RPDT, but the latter would be within it.

Student accommodation

The government will be giving further consideration to the treatment of purpose-built communal accommodation for students, according to the consultation document. It says that a case can be made for purpose-built student accommodation to be subject to the tax as it can be similar to, and be in competition with, the wider rental sector.

However, it is considering whether a test of whether student accommodation should be within RPDT could be whether the individual units are self-contained so that the kitchen, bathroom and toilet are available for the exclusive use of its occupants. This would bring studio flats within RPDT, but not traditional halls of residence.


Profits derived from the development of BTR properties would be within scope of the RPDT. Where a building is constructed within a group to hold as investment property, the profits of the property development calculated on an arm’s length basis would be subject to RPDT. This could give rise to ‘dry’ tax charges where the investor group does its own development. The idea is that a notional tax charge will apply to the value added by development less the costs of development within the group, even where that is not realised profit.

The tax could also extend to REITs which are carrying on residential development as part of their BTR business, even though they are currently exempt from corporation tax on rental income.

Calculating the tax

The government is considering two alternative methods of taxing the profit.

Model 1 would apply to standalone companies and groups of companies that undertake more than an insignificant amount of UK residential property development or support that work. Under this model all the company’s or group’s profits would be subject to the tax, even if they related to commercial development.

Profits would be as computed for corporation tax but with adjustments. In particular, finance costs would not be deductible.

Model 2 would apply to standalone companies and groups of companies that undertake any amount of UK residential property development or support that work in other companies in the same group. It would only tax the profits from residential property development.

Losses incurred before the introduction of RPDT would not reduce profits subject to RPDT, but the government is considering whether losses incurred after the introduction of the tax in 2022 should be used to reduce RPDT profits by carry forward to later years.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.