Residential Property Developer Tax - how it will work

18 November 2021

Following on from the HM Treasury consultation, on Budget day the UK government announced that the rate of RPDT will be 4% and it has since released another update of the draft legislation in the Finance Bill.


Residential Property Developer Tax (RPDT) is to apply from April 2022 and has the policy objective of requiring residential property developers to pay additional tax to fund the cost of remediating cladding issues which has been and will be borne by the government. HM Treasury has been clear throughout the consultation process that it sees RPDT as ‘time limited’, with the goal of raising c. £2bn of revenue over a 10-year period. 

Although it is the government’s intention that only the “largest” residential property developers will be brought within the charge to RPDT, the original consultation document cast a “wide net”, and was initially going to bring both residential units built for sale (trading) and for rent (investment) into the charge to the tax, as well as asset classes such as student accommodation, retirement homes and care homes where personal care is not provided.

Narrowed scope

In a very positive sign that HM Treasury and HMRC have taken on board feedback from industry and professional groups, the draft legislation greatly narrows the scope of RPDT as follows.
RPDT will apply to profits arising from the development of residential property only when the land/property is held as trading stock by the developer or a related entity. Property investors (now specifically including those using a build-to-rent model)are excluded.

The new tax will apply to companies only, although there is no restriction on the residence of the company. The developer, or a related party, must have, or have had, an interest in land. This excludes the profits of third-party construction companies contracting to develop residential property from RPDT in cases where they have not previously held an interest in the land. However, where they previously held an interest in the land on trading account, such as in a forward funding transaction, the profits of any design, construction and assistance with obtaining planning permission services will be brought within the charge to RPDT.  

The scope of the exemptions for non-for-profit entities to RPDT is limited to not-for-profits that have a charitable purpose of providing affordable and social housing (e.g. social landlords, housing associations and registered social providers). Not-for-profit entities that develop residential property for the purposes of raising funds to further their charitable purposes will be within the charge to RPDT. Taxable subsidiaries of not-for-profits will not be able to offset gift aid payments against profits chargeable to RPDT, as they can against corporation tax.  

The draft legislation includes a number of carve-outs from the definition of “residential property”, such as for ‘communal dwellings’, ie hotels, supported housing providing care/support for vulnerable groups, accommodation for members of the armed forces, prisons, etc. This list also includes purpose designed/adapted Student Accommodation, when it is wholly or mainly for those in education, and such accommodation will be used by such persons for at least 165 days in a year.

However, the exclusion for care homes and other housing for the elderly extends only to such facilities that include personal care. Retirement villages and other housing for the elderly that do not include personal care are currently within the charge to RPDT, the treatment of “mixed” developments expected to be addressed in HMRC’s to be published guidance.

Specific details

The tax is set to apply from 1 April 2022 to the profits of UK residential property development activities. Administratively, RPDT is now to align with the corporation tax rules and is, in effect, akin to a corporation tax surcharge on the trading profits of residential developments. As far fewer entities will be paying RPDT than the original draft legislation envisaged, the rate of RPDT has been set at 4% (higher than many expected) so that the government can hit its revenue raising targets. 

Standalone companies and groups will have an “allowance” available at the start of the accounting period to reduce their liability to RPDT: in the Budget this was confirmed at £25 million a year. 

The administrative arrangements for the allocation of the allowance between group companies subject to RPDT will work in a similar manner to the Corporate Interest Restriction (CIR) allowance procedure, including electing a nominated company and the preparation of an allowance allocation statement. If a nominated company is not appointed, the £25m allowance will be split between all group entities subject to corporation tax, a punitive treatment designed to encourage the appointment of a nominated company. The definition of a group is effectively the same as the definition for corporation tax group relief purposes (75% common ownership). 

Calculation of profits and losses under RPDT

RPDT profits or losses are to be prepared in line with corporation tax principles, with the following key amendments:

  • Only profits and losses relating to RPD activities (including those of interests in JV developments) are brought into account, other profits and losses are to be excluded
  • No allowances may be claimed in respect of capital expenditure
  • No claims may be made under loss relief, group relief or carried forward losses for losses not arising from RDP activities (see below)
  • No debits or credits may be taken into account with regard to loan relationships or on the fair value movement of derivative contracts.

The exclusion of interest expenses from this calculation is likely to have the biggest impact - expanding profits liable to RPDT and, therefore, the number of groups subject to RPDT.

Loss relief

The draft legislation includes the ability to claim relief for losses arising from RPD activities arising in prior periods against current period profits, and a form of group relief between entities subject to RPDT within the same group for both current period and carried forward RPDT losses. However, there are a number of restrictions that could serve to defer the utilisation of carried forward losses against RPDT profits in later periods.

In line with corporation tax rules, current year RPDT group relief claims are not restricted. 

Payment dates

The draft legislation states that RPDT is to be aligned with corporation tax payment deadlines, which, therefore, will include the recently introduced ‘super-QIPs’ regime that requires all corporation tax payments to be paid before the end of the year.   


The current form of the legislation is a significant departure from the original proposals. The changes will be welcome news for those in the build-to-rent sector, although there is uncertainty as to whether this exclusion will remain in the long term.

There is still scope for the draft rules to amended before the Finance Bill is enacted – so companies should keep up to date with RPDT developments and we will update this page if the legislation evolves further. If you have any questions on how RPDT will affect your business, please get in touch with Andrew Crossman.  

Use our new RPDT Checker to get a short indicative report on whether or not your business will fall within the regime.


Read the updated legislation (s32 onwards)