UK Property Industry Calls For Rethink On Land Tax Proposal

by Robert Lee, Tax-News.com, London

21 September 2006

UK property industry and business groups have restated their opposition to the government's plan to introduce the Planning Gain Supplement, a new land tax on redevelopment land, in the light of new research suggesting that it will lead to damaging and unintended consequences.

Announced by the Treasury in December 2005, the PGS is a new local planning levy on the value of land set aside for redevelopment, to be re-invested in the community. It would be payable by developers at the commencement of development. To the extent that it reduces the price paid by developers, it will effectively be borne by landowners but it will reduce the capital gains on which they pay tax. The tax is due to come into effect in 2008.

However, according to the Confederation of British Industry, the research, undertaken by leading property consultancy Knight Frank LLP, shows that the PGS, as envisaged by the government, may not deliver the levels of funding sought for new local infrastructure and could render some smaller developments unviable.

The study, commissioned by the CBI, the British Property Federation (BPF), Home Builders Federation (HBF) and Royal Institution of Chartered Surveyors (RICS), comprised a comparative analysis of 18 case studies and investigated the likely returns of implementing PGS at rates of 10%, 20% and 30% of the uplift in value due to the grant of planning permission. The study considered residential, mixed-use and commercial developments, examining the likely effects of PGS if implemented on the basis of the Treasury’s earlier consultation document.

The study concluded that the PGS would be unlikely to deliver the increased funding for investment in infrastructure and could reduce the supply of smaller development sites as it would render some of these financially unviable.

Jeremy Edge, Head of Planning Knight Frank LLP, noted that: “The results of our research raise a number of important questions which need to be answered before there can be sufficient public confidence in the proposals for Planning-gain Supplement, compared with the existing system of planning gain. There is currently no certainty that PGS will meet the government’s objectives.”

Michael Roberts, CBI Director of Business Environment, added that: “The more these proposals are examined, the more pitfalls become exposed. Planning-gain Supplement could hinder development of all kinds, including commercial and industrial expansion, and could have a real impact on the attractiveness of the UK as a place to do business. It could make smaller developments less viable, whilst leaving bigger developments without the community infrastructure they need.”

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