RPDT20700 - The charge to RPDT: non-profit housing company exit charge - section 47 Finance Act 2022

RPDT10100 explains that certain companies who are non-profit providers of social housing are not chargeable to RPDT and this exemption extends to a wholly owned subsidiary of such a company. This guidance uses the term “non-profit provider” to describe each of the entities listed at FA22/S34(4)(a) to (d).

Both a non-profit provider and its wholly owned subsidiaries are described as “non-profit housing companies” for RPDT purposes. It is theoretically possible for a non-profit provider to become a for-profit provider, although the rules across the nations of the UK differ, and a non-profit provider may also sell a subsidiary in order to raise funds for its activities.

FA22/S47 introduces an “exit charge” to ensure that this exemption from RPDT cannot be abused. Because the rule is intended to deter abuse of the exemption it is anticipated that it will rarely be triggered in practice. HMRC officers should refer any case to which they consider the rule may apply to the CT Structure team for advice. This applies to any request to extend the one-year period mentioned in the following paragraph.

Company ceasing to be a non-profit provider

A charge will arise where a company ceases to meet the definition of a non-profit provider without having distributed all of its assets to a company that meets the definition within one year of the end of the accounting period in which the cessation occurred. This acknowledges that, generally speaking, the constitution of such a company will require the company’s assets to be passed to another non-profit provider. The one-year period may be extended at the discretion of HMRC and it is intended to apply this rule where the delay in distributing the assets arises in circumstances beyond the control of a company that has made reasonable efforts to make a distribution within the one-year period.

Company ceasing to be wholly owned by a non-profit provider

Where a company is a wholly owned subsidiary of a non-profit provider, and ceases to be owned by such a provider, then it will no longer be a non-profit housing company for RPDT purposes. The exit charge for such a company will only apply where an interest in the company is subsequently acquired by another company under the same control as the non-profit provider and is not itself a non-profit provider.

Example of where the rule would apply

X is a commercial property developer and among its operations is Y which is a non-profit provider. Y has a wholly owned subsidiary Z which undertakes some of its non-profit development. Y may sell its interest in Z to raise funds for its non-profit activity, and the exit charge will apply if the sale is made to X or a company under the same control.

The amount of the charge

Where a company ceases to qualify as a non-profit housing company in the circumstances described above then there are the following consequences –

  • The company will not benefit from the exemption for the accounting period in which it ceased to qualify, with the result that it will become chargeable to RPDT for that period, and
  • The amount of the RPD profits to be included are those arising in the period beginning four years before the company ceased to qualify as a non-profit housing company and ending on the last day of the accounting period in which it so ceased.

The profits will include those of the relevant company’s wholly owned subsidiaries that also benefitted from the exemption, except any that have previously been taken into account under the charge. The profits to be included are the “chargeable amounts” which means the amount in excess of the available annual allowance as so would have been charged to RPDT in the absence of the exemption.

Example of the calculation of the exit charge

The M Housing Association is a registered non-profit provider that has a subsidiary N which has delivered two very large developments of lower cost housing for sale.

M and N share an accounting period that ends on 31 December. M was removed from the register from 1 July 2028. The amounts of N’s profits from RPDT activity are as follows –

APE 31 December 2024 - £15m

APE 31 December 2025 - £30m

APE 31 December 2026 -£10m

APE 31 December 2027 - £35m

APE 31 December 2028 - £5m

Assuming the full annual allowance would have been available, in its APE 31 December 2028 M will incur an exit charge of £15m. This comprises the RPD profits of N that exceeded the available allowance in four-year period from 1 July 2024 to 30 June 2028: £5m for APE 31 December 2025 and £10m for APE 31 December 2027. No further allowance is due so the RPDT payable at 4% gives a charge of £600,000.

The charge will not be payable if all of the assets of M are distributed to a non-profit provider by 31 December 2029. or such longer period as HMRC may allow.

Say M had an agreement that non-profit provider P would take over its assets but P was unwilling to complete the transfer until a legal dispute between N and one of its building contractors was resolved and so the last of the properties was distributed to P only in January 2031. In the circumstances, it would be reasonable for HMRC to extend the time limit for the distribution to that later date.

Had M sold N to a commercial developer while itself remaining a non-profit provider then there would be no exit charge unless M and the developer were under the same control.

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