Planning Gain Supplement

28 March 2007

Planning Gain Supplement (“PGS”) – why have they not called it “tax”? – is likely to be introduced in 2009. As yet, the details of amount and administration have not been confirmed but the Government has invested time and resources in preparing for it and has consulted quite widely and the outline of the new tax is being generally discussed in some little detail.

The tax is likely to be crystallised by the grant of a planning permission but payable by the person carrying out the permitted development with the payment being due within 60 days of the development start date. So, if Alan owns land at the time that planning permission is granted and then sells it to Bernard who carries out the development it will be Bernard who pays the tax.

The tax itself will be a percentage of the capital value uplift created by the new planning permission. The base value will assume that no planning permission will be granted; the uplifted value will be calculated in such a way that on occasions it will be higher than the actual open market sale price of the land with the benefit of the planning permission! The percentage charge will be set at what the Government calls a “modest” level. A rate of 20% is currently under general discussion.

Under current planning procedures, a landowner/developer may be required to enter into a planning agreement with the Local Authority. That agreement may provide for practical matters in relation to the development site, but it can also provide for payment to the Local Authority of a cash sum which might be used (in the case of a very large development) to pay for a new school or similar major community project or (for a more modest development) for landscaping, traffic lights or other items. Many or most planning permissions do not involve any payment of money under a planning agreement.

The current PGS proposals are that the tax should be payable in the case of all grants of planning permissions except for the most minor (e.g – the extension of an existing house). Also the tax (which will first go to central government) will not be earmarked for any particular local community project whether or not one is required by the actual development. Talk of PGS wholly replacing planning agreement payments may be wide of the mark.

Planning permission for the residential development of a green field site is likely to create a taxable increase in value of a number of hundreds of thousands of pounds per acre; permission to convert a redundant barn into a non agricultural office or workshop will produce a much more modest taxable gain. Previously the former would have been very likely to involve a planning agreement payment; the latter probably would not. After 2009 both are likely to suffer the tax.

The tax is likely to be collected on a self assessment basis, but with the district valuer involved in subsequent checking of values with the possibility of the tax bill then going up (or down) and interest payable on any balance of tax not originally paid.

Note that:

• If a landowner gets planning permission and then carries out his own development (for his own use or for letting) he will then have to pay tax on the increase in capital values (even though he will not be getting any capital return).
• If a landowner or developer carries out development with a view to selling the relevant unit(s) he will have to pay the tax within 60 days of development start date (even though that might be months before the capital value is realised through sale).

Are either of these scenarios “reasonable”?

Particularly in relation to development options it is worth being aware of the fact that if the developer (or any third party) obtains planning permission in respect of the landowner’s land but then does not buy it he will be leaving the landowner with something of a tax time bomb, potentially triggered by the landowner or someone else later commencing the permitted development.

So far as the landowner looking to sell land to realise cash for investment in his business is concerned, the existence of the tax may significantly reduce the sale price to a developer buying the land (including on an option or conditional contract basis).

The Government has made it reasonably clear that it does intend to introduce PGS. Although some educated guesses have been made as to how the tax will apply, nothing (including its introduction date) is finally settled. We can only wait and see, but aware that some form of tax as described above is most likely to be introduced.

At this time of uncertainty, clearly appropriate advice must be that:

1. where any development is now anticipated, PGS can be avoided by obtaining the planning permission before the tax is introduced in 2009.
2. current negotiations for development options, conditional contracts and the like and which have a life running through and beyond 2009 must take account of the impact of the tax on a price fixing formula set out in a pre-tax contract. The interests of landowners and developers will obviously differ.

For more information please contact Christopher Wacher, Partner & Head of Commercial.

‹ Back

• © Furley Page LLP 2009
• | LLP
• | Terms and Conditions
• | Privacy Policy
• | Site Map
• | Accessibility