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Implications Of A New Tax on Planning Permissions

03 November 2008

Press feature by Christopher Wacher, partner and head of property and estates at Furley Page Solicitors.

The time is coming when tax will have to be paid on almost all planning permissions.

Community Infrastructure Levy (CIL), a roof tax levied according to the nature and size of new developments, rises from the ashes of the stillborn Planning Gain Supplement (PGS) – or rather it will when the current Planning Bill reaches the statute book.

There’s no standard answer as to how much it will cost as each local planning authority (LPA) will set its own rate.

Who pays – and when?

It’s paid by the developer – and in this case that’s anyone carrying out a development – at the start of the project. It could be a major house builder embarking on a 500-house scheme or a farmer converting a redundant barn into an office or workshop unit, either for his own use or as a commercial let.

Although the tax is payable (on a self-assessment basis) on the date the development starts, the actual liability is triggered by the grant of full planning permission – with no outstanding reserved matters. At that date the tax will be fixed and the sum will be carried forward and increased by a specified index between the date permission was granted and the payment date.

Obviously there will be penalties and/or interest on late payment and the LPA will probably issue something akin to a Stop Notice preventing further development until the tax is paid. It’s as well to remember that unpaid tax may be registerable for a local land charge affecting subsequent transfers and other dealings.

Complications can arise if the developer is not the owner of the land in question – such as a tenant carrying out a development with landlord consent. Although the developer is liable for the tax, if he doesn’t or can’t pay it’s possible the LPA could demand it from the landlord.

How is CIL set?

Local Plans are being replaced by Local Development Frameworks (LDFs). The LPA has a statutory duty to plan for, and cost, the infrastructure (widely defined to include transport facilities, flood defences, schools and social care facilities but not, initially, affordable housing) required by its LDF and decide how much of this cost should be funded by CIL. The LDF will contain a charging schedule setting out the types of development that will incur CIL and the rate at which each will be charged.

The rate of tax is set in the charging schedule and will be subject to review and/or automatic increase in line with a specified index. Latest government thinking is that charging may be on the basis of £x per square meter for non-residential development or £y per unit or £z per bedroom for residential development.

Certain developments will be excluded (by statute) from CIL but they will be limited. They could be developments where no planning permission is needed by virtue of a General Permitted Development Order or where a homeowner is carrying out specific works. Charities, too, might be exempt but no real detail is known.

When will it happen?

The necessary legislation needed to introduce the tax is unlikely to be in force before spring or summer 2009. It will then be up to LPAs to produce their LDFs. CIL cannot be levied before the date a charging schedule is in place under a confirmed LDF – or in respect of any planning permission which is validated or any planning permission which is granted before that date.

Section 106 agreements

Currently, only a minority of planning permissions has linked Section 106 (planning) agreements. Where such an agreement exits it can already require cash contributions, among other things, to pay local infrastructure costs. There’s no plan as yet to remove this scheme but whether contributions are scaled down remains to be seen.

Can you avoid CIL?

We’re in a period of gestation as far as CIL is concerned. The government says it “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 will incur the new levy.

If you want to avoid the tax, my advice is this. Get any planning permission you need sooner rather than later – ie before the local development framework with the CIL charging schedule is confirmed for your area.

For further information contact Christopher Wacher.
 

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