RPDT10350 - Key concepts: interest in land: interaction with the transaction in UK land and offshore property developer rules
Offshore Property Developers would generally hold land as trading stock and be trading under first principles (CTA09/S5B(1)(a)) and will therefore be within scope of RPDT if their RPD profits exceed the annual threshold of £25m. Where the status of an entity is determined to be a trading activity by any of the four tests under CTA10/S356OB, it is likely that the conditions for RPDT to apply will be met. To the extent that RPD profits exceed an annual allowance of £25m per group, after relief for RPD losses carried forward and RPD group relief, these are charged to RPDT.
An example of where the conditions for RPDT do not apply but the transactions in land rules would
A UK residential property developer obtains financing from an overseas investment company.
In return for the financing, there’s an agreement that the overseas investment company has a share in the profits from the development (known as an overage or slice of the action agreement).
As security for the financing provided the overseas investment company takes a charge over the land. This is an excluded interest in the land for RPDT purposes, as per FA22/S36(2)(a).
The overseas investment company may be treated as being party to an arrangement under CTA10/S356OB(2)(c) meaning its share of the profits would be within the UK Transaction in Land rules and subjected to Corporation Tax.
However, as the overseas investment company has only an excluded interest in the land and not one held as trading stock, none of their profits will be subject to RPDT by virtue of FA22/S36(2)(a) and FA22/S36(6).
The RPDT guidance is not intended to have any bearing on the way that HMRC interpret between trading and investment activity.