RPDT10100 - Key concepts: meaning of residential property developer - Section 34 Finance Act 2022

RPDT is charged on the RPD profits of a residential property developer. FA22/S34 sets out when a company is regarded as a residential property developer.

For a company other than a non-profit housing company, it is an RP developer:

  • if it is within the charge to Corporation Tax
  • if it carries on residential property development activities, or
  • if it, whether alone, or together with a member of the group to which it belongs, has a substantial interest in a joint venture company that is an RP developer. A joint venture company is treated as undertaking the development activities of a group of which it is a member, FA22/S40(8).

A “substantial interest” in this regard means a 10% or greater interest in the ordinary share capital of a relevant joint venture company, when the holdings of all members of a group are taken into account. If a joint venture company does not have ordinary shares, then a beneficial entitlement to at least 10% of the profits available for distribution to equity holders is a substantial interest. FA22/S40(2) defines a joint venture for this purpose and FA22/S40(12) defines “substantial interest”, guidance on joint ventures can be found at RPDT20300.

FA22/S34(3)-(4) provides an exclusion from being treated as a residential property developer for the purposes of the RPDT for non-profit housing companies and their wholly owned subsidiaries. Whilst many of these providers will be charitable companies or associations, which would not generally be liable to Corporation Tax on any trading profits from their primary purpose activities, this would not usually be true of their subsidiaries. Typically, subsidiaries of a charitable company are able to reduce or eliminate their CT liabilities by donating their profits to the parent charity and making a claim for charitable donations relief. The extension of the exemption from RPDT to subsidiaries of a non-profit housing company provides a simpler route to eliminate the RPDT liability of a trading subsidiary. FA22/S47 provides for an “exit charge” to ensure that this exemption from RPDT is targeted correctly, guidance can be found at RPDT20700.

Since housing policy is a devolved matter across the United Kingdom, the definition of a non-profit housing company is based on legislation applying in each of the devolved administrations and differences in approach exist. The exclusion for non-profit housing companies will apply to registered providers of social housing in England, only if they are registered as non-profit providers. In Scotland it is only currently possible to be a Registered Social Landlord if the company is non-profit.

Providers of affordable housing that are registered as for-profit are not covered by the exclusion and remain within the scope of RPDT.

Where a commercial developer constructs dwellings that are marketed as affordable housing then any profits or losses will be taken into account in calculating the developer’s RPD profits. This is especially relevant where a developer undertakes to provide a particular number of affordable housing units as part of an agreement under the terms by which planning consent is given for a development. Such agreements are frequently described as ‘section 106 agreements’ from that section of the Town and Country Planning Act 1990.

To ensure that the RPDT legislation can be kept up to date with any changes in the rules applying to registered providers in the constituent nations of the UK, there is power at FA22/S34(5) to amend the definition of a non-profit housing company by Statutory Instrument.

Apart from Housing Associations and similar charitable or commercial providers of affordable housing, the other principal operators in that sector are local authorities, sometimes operating through subsidiary companies. Local authorities have a general exemption from Corporation Tax and so are outside the charge to RPDT, CTA10/S984(1). However, this exemption does not apply to companies owned by local authorities, which may be chargeable to Corporation Tax if they have profits from trading or other sources. This distinction applies equally to RPDT, so a local authority subsidiary that trades as a residential property developer can come within the scope of the tax if the general conditions are met regarding RPD activities and its RPD profits exceed the annual allowance.

RPDT01100 contains a general introduction to RPDT and a list of abbreviations used.