What R&D tax relief can mean for property developers

Important: for accounting periods beginning on or after 1 April 2024, the previous SME and RDEC schemes no longer apply. Claims are made under the merged R&D tax relief scheme or, for eligible loss-making R&D-intensive SMEs, ERIS.  

Is this topic still relevant for property developers?

Yes, and arguably more so now. Developers are being pushed to deliver better performance, lower carbon, safer buildings, and more predictable delivery, often on difficult sites and under tight programmes. That reality drives experimentation and problem-solving, but the key point is this: complexity alone is not R&D.

R&D tax relief is designed for projects that aim for an advance in science or technology and involve scientific or technological uncertainty that a competent professional could not readily resolve. If your team is having to test, model, prototype, trial alternatives and learn what works, you may have qualifying activity.

What counts as R&D in property development?

For HMRC purposes, R&D is not about whether a project is new to you or “innovative” in a commercial sense. It is about whether you were trying to achieve a technological advance, and whether there was genuine uncertainty in how to do it.

In the built environment, that often shows up in how you design, integrate, and prove performance. It can include work on products, processes, materials, systems, and software, as long as the advance is scientific or technological.  

What usually does not qualify

Many important activities in development are not R&D for tax purposes, on their own. Common examples include routine design and build, value engineering, standard compliance work, cosmetic or aesthetic design changes, planning and stakeholder management, procurement, and standard project management.

You can also have “difficult” projects that still do not qualify if the solution is already established in the field and you are simply applying known methods.

Examples of where R&D can show up in development projects

HMRC does not publish a simple checklist of “qualifying development activities”, but in practice R&D often appears in areas like these, where the solution is not readily available and you have to do systematic technical work:

Building performance, energy and low carbon delivery

• Solving thermal bridging or airtightness performance issues that are not responding to standard detailing
• Developing new integration approaches for heat pumps, district heat, PV, battery storage, or smart controls where performance is uncertain in the real operating environment
• Designing, modelling and testing to hit challenging operational energy targets where existing approaches do not work for the building form or use case

Fire, acoustics and safety-critical performance

• Developing new façade, compartmentation or material interfaces to meet demanding fire or acoustic requirements, where standard assemblies do not deliver in practice
• Engineering solutions to remove or materially reduce safety risks while meeting buildability constraints

Ground conditions, remediation and structural constraints

• Novel ground improvement or remediation methods where conditions are unusual and outcomes are uncertain
• Structural engineering challenges where known solutions are not feasible due to load paths, geometry, access constraints, or adjacent asset protection

Modern methods of construction and offsite delivery

• Developing new MMC components, manufacturing methods, or connection details to achieve tolerances, performance, and speed targets where the technical outcome is uncertain
• Creating new QA or monitoring approaches to ensure performance in production and at installation

Digital engineering and software

• Developing modelling, simulation, monitoring or digital twin capabilities where existing tools cannot handle the constraints of the asset, data, or performance requirements
• New ways of integrating disparate data sources to improve performance monitoring or defect prediction, where established approaches fail at scale

The safest way to frame eligibility is always the same: what was the uncertainty, what did you try to resolve it, and what technical knowledge did you create or improve as a result?

Can property developers claim if contractors or designers did the work?

Potentially, yes, but this is where many construction and development claims become fragile. Under the reformed rules, where R&D is carried out under a contract, the right to claim for contracted-out R&D is generally intended to sit with the customer, subject to exceptions and conditions.  

In practice, you need to be able to show that you intended or contemplated that R&D “of that sort” would be done to meet your project needs.   If you simply buy an outcome and you are indifferent to how it is delivered, it can be harder to support the position that you contracted for R&D rather than routine delivery.

This is especially important in supply chains with multiple layers (developer, main contractor, specialist contractor, designer). Getting the contracting analysis right early can save months of pain later.

What costs might qualify for developers?

If you have qualifying R&D activity, the next step is qualifying expenditure. The main categories under the merged scheme and ERIS are aligned, and commonly include staff costs, EPWs, subcontracted R&D, consumables, and software, plus cloud and data costs used directly in R&D activities.  

For property developers, the costs that most often show up are:

Staff costs

Salary, employer NIC and pension contributions for employees directly involved in the R&D, apportioned for time spent. This often includes in-house design, technical, engineering, digital, and project teams where they are doing the qualifying technical work.  

Subcontractors and EPWs

Specialist engineering and technical delivery may be claimable where the conditions are met, often with restrictions (including the common 65% restriction for certain unconnected third-party costs).  

Consumables and prototypes

Materials consumed or transformed in the R&D process can qualify. In development, that can include test materials, trial assemblies, prototypes, and certain utilities used directly in the R&D work.  

Software, cloud and data

This can include software used for qualifying R&D work (design, simulation, modelling, testing) and cloud or data costs where they are used directly in the R&D activity.  

A key change to watch: overseas subcontractors and overseas EPWs

From April 2024, restrictions apply to certain overseas spend, particularly for subcontracted R&D and EPW costs, with limited exceptions. If elements of your technical work (design modelling, simulation, specialist engineering) are delivered outside the UK, it is worth reviewing eligibility before you assume those costs can be included.

How much is the relief worth under the new rules?

Most companies now claim through the merged scheme, which provides an R&D expenditure credit at a headline rate of 20% of qualifying R&D spend, and the credit is taxable so the net benefit depends on your tax position.  

Loss-making R&D-intensive SMEs may instead qualify for ERIS, which has a different calculation and can deliver a better cash outcome in the right circumstances. ERIS requires you to be loss-making and meet the R&D intensity condition (broadly 30%).  

The PAYE/NIC cap

Where a credit becomes payable, the payable amount can be limited by the PAYE/NIC cap. Under the merged scheme and ERIS, the cap is £20,000 plus 300% of the company’s relevant PAYE and NIC liabilities for the period (unless you are exempt).  

Admin steps that can block a claim

Even strong claims fail on process. Depending on your circumstances, you may need to submit a claim notification form within the required window before you claim.  

You will also need to submit an Additional Information Form (AIF) for each accounting period before (or in the required sequence with) your Company Tax Return, otherwise the claim may not be accepted.  

Meeting deadlines matters, as it could stop you from claiming even if you're eligible. Get your personalised deadline schedule using our quick tool.

Use our calculator for a quick estimate

If you want an indicative figure, try our R&D tax calculator. It provides an illustrative estimate only and is not a substitute for advice, particularly for development groups with complex contracting chains, overseas delivery, or PAYE/NIC cap considerations.