Scope of RPTD
The tax will apply from 1 April 2022 on periods ending on or after that date, and will affect companies or groups which undertake UK residential property development where annual profits exceed £25 million.
HMRC have defined residential property development activities as including ancillary activities including dealing in property, designing it, seeking planning permission in relation to it, constructing in and marketing and managing it. HMRC seem to want to prevent the ‘fragmentation’ of profits from a developer company to other group companies. Importantly, a property developer must have had an interest in the land, therefore profits of third party construction companies and building contractors are excluded.
Where the tax will apply only to companies, there is no restriction on the tax residence of the company. Entities that are not companies are excluded.
HMRC have taken on feedback from industry professionals and as a positive reaction have narrowed the scope of the draft legislation which was published for consultation; the RPDT will no longer be levied on longer term property investors, including those using a build- to- rent model although there is uncertainty as to whether this exclusion will remain in the long term.
The draft legislation includes a number of exclusions on the definition of ‘residential property’, such as communal dwellings, ie hotels, purpose designed student accommodation, and supported housing providing for vulnerable groups. Retirement villages and other housing that do not include personal care are therefore currently within the charge to RPDT.