The Pre-Budget Report launched a consultation on a new Planning Gain Supplement (PGS) as proposed by the Barker Report. The intention is to tax the increase in land value resulting from planning consent. The key features are briefly set out below but are subject to change. The closing date for responses to the consultation period was 27 February 2006.
Will the PGS apply to residential and commercial property?
Yes – it will apply to residential and non-residential development. Home improvements will be excluded and the Government is considering thresholds to exclude smaller developments.
When will the tax come into effect?
PGS is intended to apply from 2008 but the precise date is not yet known. The proposed transitional rules will only apply to full planning permissions that are granted before the date when the tax comes into effect. Planning permission applied for but not granted before the given date will fall within the new tax regime. Therefore under the proposed scheme transactions currently under way could be caught by the new tax but the proposals are not finalised.
What will the tax be payable on?
The tax will be payable on the difference between current use value of the land before full planning permission is granted and the value afterwards.
What will the rate of tax be?
This has not yet been set but it is intended to capture a “modest proportion” of the gain in value referred to above. Section 106 contributions and remediation costs would be taken into account. The cost of infrastructure improvements previously covered by planning obligations is intended to be financed by the allocation of PCS proceeds to local authorities.
When will the tax be payable and who will pay?
The proposals rely upon a party – usually the developer - serving a “Development Start Notice” which identifies that person as the “chargeable person” for the tax. It will be unlawful for development to start without serving such a notice and “stop” notices could be served. The tax will be paid by filing with HM Revenue & Customs a PGS return together with payment within a specified period from the date of commencement of development .
How will PGS affect Developers?
Developers will inevitably pay more tax. PGS will apply in addition to other taxes although the Government is considering allowing a tax deduction for PGS against income tax or CGT. The ability of developers to keep planning permissions alive by carrying out minimal works will be curtailed as the “Development Start” will trigger the PGS liability. It is vital that the Government clarifies the transitional rules as soon as possible to provide developers with certainty. A 2008 commencement date could have enormous ramifications for major planning schemes already in the pipeline which have already been costed but where detailed planning permission may not be granted until 2008 or later.
Further information:
Press Notice on new inquiry into planning gain supplement, 31 January 2006 (Commons Select Committee on the Office of the Deputy Prime Minister).
Office for the Deputy Prime Minster – Planning Gain Supplement: The Facts
HM Treasury – Planning Gain Supplement – A Consultation
Who can help?
If you would like further advice about any of the issues considered above please get in touch with your usual contact at plainlaw or Philip Horn on 01865 240202 or e-mail him at philip.horn@plainlaw.co.uk
This edition of “The law made plain” is written to provide you with general information. It is recommended that you seek specific professional advice before taking any action.
© Copyright plainlaw 2006
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