Autumn Budget 2021 – Residential Property Developer Tax

Oct 27, 2021

In the 2021 Autumn Budget announcement (27 October 2021), Chancellor Rishi Sunak has confirmed a 4% Residential Property Developer Tax (“RPDT”) to fund the government’s £5billion pledge to replace unsafe cladding for leaseholders in high-rise buildings across England. This follows from a consultation earlier this year on a developer tax and the subsequent publication of the draft legislation.

Most notably in relation to the Residential Property Developer Tax, the budget has confirmed:

  1. The rate of the Residential Property Developer Tax shall be 4%
  2. The RPDT shall be levied only on developers with profits over £25million

The RPDT will apply from 1 April 2022 to profits recognised in accounting periods ending on or after that date, with profits from periods straddling that date being apportioned.

Application of the Residential Property Developer Tax

Residential Development

The draft legislations states that the RPDT will apply to companies/groups carrying out “residential development activity”.

The definition of residential development activity is wide, and includes a non-exhaustive list of exemplar activities, including seeking planning permission on land and marketing and dealing in “residential land”.

The definition of residential land is similar to that used in SDLT legislation, being a building which is “designed or adapted, or is in the process of being constructed or adapted, for use as a dwelling”. The definition includes the gardens and grounds of those buildings (such as communal areas) and land over which residential planning permission has been granted or is being sought.

Notably, this definition includes buildings being developed where gaining planning permission has not been necessary. Developers using permitted development rights should therefore carefully consider RPDT.

There are a few exemptions from RPDT, including profits arising from purpose-built student accommodation and defined types of “communal dwellings” (including institutional buildings). However, retirement communities that offer older people who are not reliant on care accommodation and communal facilities will be subject to the RPDT.

Interest in the Land

Companies/groups who have, or had, an interest in the relevant land will fall within the scope of RPDT. Notably, an “interest” in the land extends beyond simply owning the land.

Companies/groups who have the benefit of a condition, obligation or restriction which affects the value of the relevant land (for example, the benefit of a restrictive covenant) will fall within the scope of RPDT. However, having a mortgage over the land or a licence to use the relevant land will not fall within the scope of RPDT.

Interestingly, the tax applies to those who previously had an interest in the relevant land. If forward funding or an overage arrange is in place, the application of RPDT should be carefully considered.

Note that third party contractors who do not have an interest in the land on which the work is being carried out will fall entirely outside of the RPDT.

Calculating the Residential Property Developer Tax

The RPDT will be levied in addition to corporation tax and is not itself corporation tax.

The draft legislation states that the tax shall apply only to residential property development profits (as opposed to taxing all of the profits of a company/group that undertook a certain amount of residential development activity).

Those within the scope of RPDT will be required to apportion profits which do and do not relate to residential property development activities on a “just and reasonable” basis, and those which do not relate are carved out under the tax calculation rules. However, note that financing costs will not be deductible.

Tax free allowance

The budget announcement confirms the earlier indications that only the ‘largest’ residential property developers would be affected. The introduction of the RPDT tax-free allowance (£25million) means that smaller developers will fall outside the scope of the tax.


It is also worth noting that various RPDT specific group and loss relief rules are available within the draft legislation. These are drafted in a similar way to those for corporation tax.

Also, the draft legislation non-profit housing companies will be exempt from the tax, however may be subject to exit charges if the company ceases to be a non-profit housing company.

Commercial Considerations

It is unclear how this tax will impact on government priorities when delivery residential development. Many have expressed concerns regarding the impact the RPDT will have on delivering affordable homes, sustainability standards and the size of new housing given that the tax will impact consideration of profit margins at the planning stage of a development.

If you require further advice regarding residential property developer tax or any other Real Estate matter, please contact our Real Estate department. You can also email your query to realestate@herrington-carmichael.com, or call 01276 686222.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Rachel Duncan

Rachel Duncan

Partner, Property Law

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