RPDT20300 - The charge to RPDT: attribution of joint venture profits and losses- section 40 Finance Act 2022

The RPD profits of a company will include the RPD profits of a joint venture (JV) company of which the company is a member. This is factor B in the formula set out in FA22/S38. A JV company’s losses may also be attributed to a member company subject to an election being made, as explained below.

A JV company, or the group of companies of which a JV company is a member, may itself be liable to RPDT where its RPD profits exceed its available annual allowance. For this reason, only JV company profits that fall below its own allowance are attributed to its members. There are special rules that apply the annual allowance to a company that is itself a joint venture, see RPDT20600.

Whether a JV company’s profits are attributable also depends on whether the company is within the definition of a JV company for RPDT purposes and whether the member company, together with members of that company’s group, hold a 10% or greater share of the JV company.

Meaning of joint venture FA22/S40(2)

The definition of a JV company for RPDT purposes is the same as that used for the Substantial Shareholding Exemption that applies for Corporation Tax on capital gains.

A company is a JV company if –

• It, or a member of the same group, is a RP developer, see RPDT10100
• It is not a 75% subsidiary of another company, because in that case it would be a member of a wider group
• At least 75% of the company’s share capital is held by five or fewer persons. For this purpose, members of the same group are treated as being the same person.

Where the JV company does not have share capital then the last condition is based instead on entitlement to distributable profits.

When joint venture profits are attributable FA22/S40(4) & (12)

A JV company’s profits and losses are attributable to a member company when that company, together with any company that is a member of the same group, holds 10% or more of the ordinary share capital of the JV (a ‘substantial interest’). This test is based on entitlement to distributable profits for a JV that does not have ordinary share capital.

Where the member company is not itself undertaking RPD activities then it is treated as being an RP developer as a result of its interest in the JV, FA22/S34(1)(b). Amounts are attributable only to the actual members of the JV and not to other companies in the same group that are themselves RP developers, FA22/S40(4) & (6). That is the reason for this part of the guidance referring to attribution to a “member company”.

Where a loss is attributed to a member company that is not itself undertaking RPD activity, or has RPD profits of less than the amount of the attributed loss, then it will be necessary to make a claim for RPDT group relief if the loss is to be set against RPD profits elsewhere in the member company’s group. Guidance on RPDT group relief is at RPDT20420.

The attributable amount

The amount of JV company’s profits or losses attributable to a member company is based on its proportion of the JV company’s distributable profits that the member company is entitled to. The rules about equity holders’ entitlement to profits for Corporation Tax profits apply for this purpose, FA22/S50(2) to (4).

Where the JV company is itself a member of the group then it is the net RPD profits of that group that are attributable, FA22/S40(8), and where the JV company’s accounting period does not coincide with that of a member then the attributable amounts should be apportioned on a time basis, FA22/S40(7).

Joint venture losses

Where the JV company or member of its group makes a net RPD loss during an accounting period then that can also be attributed to its members in circumstances where a profit would be attributable. Clearly, a JV company or member of the same group may wish to retain such losses, so a loss is only so attributable where the JV company and the member company make an election, in which case the loss is no longer available to the JV company or member of the same group. The election must be made by two years following the end of the JV’s accounting period in which the loss arises FA22/S40(5), (10) & (11).

Because FA22/S40(8) attributes the net profit or loss of a group of which a JV company is a member to the JV company itself for this purpose, the election is to be made between the JV company and the member company even where the loss arises in another company in the JV company’s group. The RPD loss available to the loss making company in the same group as the JV company is reduced accordingly, FA22/S40(11)(b).

Example

P Ltd is a company with shares owned by shareholders in the following proportions –

Q Ltd 40%, R Ltd 20%, S Ltd 8%, T Ltd 5%, U Ltd 7%, the remaining 20% of shares are owned by various individuals. T Ltd and U Ltd are members of the same group. All of P Ltd’s issued shares have equal rights.

In its 12-month accounting period ending on 31 December 2025 P headed a group that made net RPD profits of £45m and was entitled to the full annual allowance of £25m. So, members of the P Ltd group are liable to RPDT on profits of £20m.

P Ltd is a JV company for RPDT purposes because five persons, Q, R, S, T & U Ltd hold 80% of its share capital. In fact, it is only four persons because T and U Ltd are treated as being one person because they are members of the same group.

The result is that an amount of P Ltd’s RPD profits that fall below its allowance, £25m, is attributed to its members Q, R, T and U Ltd in proportion to their shareholdings (on the basis that P’s shares give equal entitlement to distributable profits). There is no attribution to S Ltd because it’s interest in P Ltd is below 10%. However, profits are attributable to T and U Ltd because they are members of the same group with a total interest of 12%.

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