MHA | Residential Property Developer Tax – Filing Deadlines Looming

Residential Property Developer Tax – Filing Deadlines Looming

· Posted on: February 9th 2024 · read

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Within the next few months, the majority of companies affected by the Residential Property Developer Tax (RPDT) will be filing their first corporation tax self-assessment returns after its introduction on 1 April 2022.

Some of the issues identified when the legislation was announced are now being addressed practically by the industry. We are working with clients to help them navigate this new tax which, whilst simple in concept, can prove to be complicated in practice for Residential Property (RP) developers who are members of groups and for companies that have an interest in joint venture companies that are themselves RP developers.

RPDT was introduced as part of a building safety package announced in February 2021 to obtain a contribution from the UK’s largest residential property developers towards the Government’s cost of addressing unsafe cladding following the Grenfell Tower fire tragedy in June 2017. It is intended to raise at least £2bn over a ten-year period. The Government has stated that the tax should be time limited and will be repealed when its aims have been achieved. As the legislation fails to include a sunset clause, the tax is currently open ended.

  1. Stand-alone companies and groups will have an allowance of £25 million for every 12 month accounting period to deduct from their RP development profits.
  2. To the extend RP development profits exceed £25 million RPDT is levied at the rate of 4%.
  3. Where there is a group, the £25m allowance is split between the group entities which are subject to corporation tax.
  4. A nominated company will allocate the allowance between relevant group companies by submitting an allocation allowance statement – this notification can either be emailed to HMRC or it can be included as part of the nominated company’s corporation tax return (supplementary form CT600N)
  5. RPDT profits are calculated using normal corporation tax principles but ignoring:-
    • Profits and losses not relating to the RP development activity (apportioned on a just and reasonable basis);
    • Any amounts of loss relief, group relief or group relief for carried forward losses except for those relating to the RP development activities; or
    • any credits or debits that would otherwise be brought into account in relation to the loan relationship rules
  6. RPDT is payable as if it is corporation tax and will therefore fall due for payment on the same dates. Therefore quarterly instalment payments which full due after 1 April 2022 will need to include an element of RPDT.
  7. RPDT is assessed on RP Development profits where the RP developer has (or previously held) an interest in property held as part of that company’s stock in trade. Therefore, gains from holding residential property as a long term investment is not within the scope of RPDT.
  8. The legislation provides for a form of group relief available from another group company which has a residential property development activity incurring RP development losses for the same period. Relief for brought forward losses (whether arising in the company or surrendered by another group company) will be restricted to 50% of RDPT profits assessable in any year. This restriction might act to significantly defer relief available for losses arising in previous periods.
  9. Communal dwellings such as hotels, residential nursing homes or student accommodation are excluded from the definition of residential property for the purposes of calculating RP development profits.
  10. An exemption is available for “non-profit housing companies” which are not for profit companies that have been established specifically for the purpose of providing affordable and social housing.

RPDT in practice

As interest expenses and finance costs are ignored when calculating RP development profits, it is possible that commercially loss making RP Developers are within the scope of this tax, particularly if they are heavily geared. It should not therefore be assumed that loss making RP developers will have no obligations under RPDT.

Given the rules which state that you have to ignore interest or finance costs when calculating RP development profits, one wonders how or when the loss relief rules would practically be applicable.

Taking into consideration the current economic climate, it is difficult to envisage a scenario whereby a company would be making RP development losses.

Groups have within 12 months after the end of an accounting period to formally inform HMRC of the identity of the nominated member who will make the allocation of the £25 million RP development profit allowance between its group members (allowance allocation statement).

Strict deadlines apply and unless the allocation allowance statement is submitted within 12 months of the end of the accounting period to which it relates, the £25 million RP development profits allowance will be allocated between all group members who are subject to corporation tax equally. As a result of the above, a group company will automatically be allocated part of the RP development profit allowance regardless of whether it actually undertakes residential property development activities.

The nomination and the allowance allocation statement can be submitted as part of a company’s corporation tax return.

However, should a group be concerned that they might not file their corporation tax returns in time, a nomination and an allowance allocation statement can be submitted independently of their corporation tax returns by making relevant declarations directly to HMRC via email using: [email protected].

Once submitted, an allowance allocation statement can be amended up to 24 months after the end of the financial year to which it relates. Thus there would seem to be little downside in ensuring your allowance allocation is submitted early even if a group has not finalised its taxation affairs for a period. As the vast majority of companies maintain an accounting date of 31 December or 31 March, this is a matter they will need to address in the next few months.

The need for apportionment of the profits of a company within scope of RPDT is most likely to arise in the case of mixed-use developments or where residential units in a development are offered for both sale and rent.

What might be considered a just and reasonable basis for apportioning profits will depend on the circumstances. HMRC guidance states that apportionment based on floor area, value or turnover might be appropriate depending upon the circumstances

This insight was previously published in our Real Estate Matters Spring 2024

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