Community Infrastructure Levy

25 September 2008

Community Infrastructure Levy (CIL) - a new tax on (almost) all planning permissions

Community Infrastructure Levy (CIL) rises from the ashes of the stillborn Planning Gain Supplement (PGS) – or it will when the current Planning Bill reaches the Statute Book and subordinate legislation made.  In re-reading the article I wrote about Planning Gain Supplement in March 2007 I notice obvious similarities and equally obvious differences.  There are, however, sufficient differences to make comparison a fairly pointless exercise.  This article looks at CIL and tries to explain how it will be imposed, how much it will be, who will pay it and when. 

What is Community Infrastructure Levy (CIL)?

It will be a variety of roof tax basically levied according to the nature and size of new developments permitted by planning permission.

How much will Community Infrastructure Levy (CIL) be?

There will never be a standard answer to this question as each Local Planning Authority (LPA) will set its own rate. 

Who will pay Community Infrastructure Levy (CIL) and when?

It will be paid by the “developer” at the date of start of the development.  Note that “developer” is not used in the ordinary sense of the word.  Here it means anyone carrying out any relevant development.  It could be a major house builder starting the development of a 500 house scheme or a farmer converting a redundant barn into an office or workshop unit (whether for his own use or for commercial letting).  Although the tax will be payable (on a self assessment basis) on the date the development starts the actual liability will be triggered by the grant of full planning permission (with no outstanding reserved matters).  At that date the amount of the tax will be fixed and although an obligation to make the payment will not arise until the development actually starts that fixed sum will be carried forward and increased by a specified index between the date of grant of permission and the payment date.  Obviously there will also be further penalties and/or interest charged on late payment.  If the tax is not paid on time the LPA will probably have the ability to issue a Stop Notice preventing further implementation of the planning permission until the tax is paid.  Also, unpaid tax may become registrable as a local land charge affecting subsequent transfers and other dealings.

Although it will be the “developer” who is required to pay the tax a complication may arise where he is not also the owner of relevant land.  Such a scenario will be where the developer is a tenant carrying out development which his landlord has given consent for.  It will be the tenant who will have the prime liability to pay the tax but it is believed that if he does not or cannot then the LPA will be able to go against the landowner in default.  This possibility should be provided for in appropriate circumstances including at the time when a landlord is approached by his tenant for consent for a tenant’s improvement which needs planning permission.

How will Community Infrastructure Levy (CIL) be set?

Local Plans are being replaced by Local Development Frameworks (LDFs)  The LPA will have a statutory duty to plan for and cost the infrastructure required by its LDF and to decide how much of this cost should be funded by CIL.  Having done this, the LDF itself will contain a Charging Schedule setting out the types of development which will attract CIL and the rate at which each type will be charged.  From the date of confirmation of the LDF those types of development will attract tax at that rate.

The rate of tax (per unit of development) will be set in the Charging Schedule.  It will, however, be subject to review and/or automatic increase in line with a specified index.

“Infrastructure” will be widely defined to include transport facilities, flood defences, schools and social care facilities.  Initially affordable housing will not be included.

The latest government policy statement says that charging may be on the basis of £x per square metre for non-residential development or £y per unit or £z per bedroom for residential development.

Theoretically the whole tax will (from the LPA’s perspective) be voluntary as there will be no statutory obligation to impose it.  The chance of non-imposition will, presumably, be remote.

Application and Effect of Community Infrastructure Levy (CIL)

There will be certain developments which (by statute) will be excluded from CIL but those exclusions will be limited and may be such things as development for which no planning permission is needed by virtue of a General Permitted Development Order and development comprising householder works carried out by a home owner.  Maybe charities will be exempt but no real detail is known although, so far as is known, there will be no statutory exemption for any specific agricultural/rural based developments.  

The LPA will itself confirm what developments will attract tax so by omission an LPA could exclude politically favoured developments.  There will, therefore, be a different list of taxable development for each LPA.  Similarly, each will set its own rates of tax for different developments according to their own agenda.  They may, of course, set rates low so as to attract favoured development (e.g. employment creation) from neighbouring LPAs.  Equally, they may set particular rates high to discourage unpopular development (e.g. polytunnels or caravan parks). 

Timetable and transitional situation 

The primary and secondary legislation required to introduce the tax is unlikely to be in force before the spring/summer of next year.  It will then be for LPAs to produce their LDFs and it will only be when they are confirmed that the tax will become payable. 

CIL cannot be levied before the date a Charging Schedule is in place under a confirmed LDF nor in respect of any planning application which is validated or any planning permission which is granted before that date. 

Interrelationship with Section 106 Agreements

It is only a minority of planning permissions which have a linked Section 106 (Planning) Agreement.  Where there is such an agreement it can require cash contributions to be made including to pay for local infrastructure costs necessitated by the proposed development.  There is no current plan to remove this scheme.  This means that in the case of some developments a “developer” may be required to pay CIL (going to the LPA for its overall proposed infrastructure schemes) and a Section 106 Agreement contribution (going for very local infrastructure).  Whether the Section 106 contributions are scaled down to take account of the overall impact of CIL will remain to be seen. 

Conclusion

We are now in a period of gestation so far as CIL is concerned.  Until the legislation and regulations are in force its means and scope of application will remain uncertain and until the LDF with its own CIL Charging Schedule is in force for any particular area the tax will not become payable in that area nor will it be known what the details of the relevant types of development and rates of tax are.

The government policy statement says that CIL “increases fairness by broadening the range of developments” contributing to overall infrastructure costs.  In practice it means that instead of a small number of planning permissions making cash contributions under Section 106 Agreements the vast majority of all planning permissions will attract the new levy. 

I started this article by saying that I would not compare CIL with PGS.  I will end it by giving one piece of advice which is identical to that given in relation to PGS.  To avoid the tax, get any planning permission you want sooner rather than later (i.e. before the local development framework with CIL Charging Schedule is confirmed for your area).

For further information contact Christopher Wacher, Head of Property and Estates, on 01227 763939.
 

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