New Tax On Developing Land: The Planning Gain Supplement

25 - 6 - 2007 

The proposed planning gain supplement (PGS) is a tax the Government is committed to bringing in, despite opposition from many sections of the property industry.

PGS is a proposal aimed at capturing a percentage of any increase in the value of land resulting from the grant of full planning permission. It will catch both residential and non-residential developments. The Government’s current intention is that it will come into operation in 2009 if, after further consultation, it continues to be deemed workable and effective.

PGS will be payable when the planning permission is implemented. A developer will not be able to lawfully proceed with the development until the PGS liability has been assessed and paid. Section 106 Agreements will continue to be used, but will be reduced in scope to environmental matters and affordable housing. The Government has said that the PGS revenue will help fund infrastructure at both a local and regional level.

Whilst there is some doubt that the new tax will be introduced in 2009, developers should nevertheless act now to protect themselves in the following ways:

  1. Bring forward applications for full planning permission. It is unlikely PGS will apply retrospectively to full permissions already granted.
  2. Make sure the option agreement/conditional contract expressly provides for the burden of the PGS cost. Developers should try to negotiate a price reduction or provide for a deduction to cover all or part of the PGS. Any overage or profit-sharing provisions should allow PGS as a cost in the calculation.

The rate of tax has not been set but it is intended to be “modest” (20% has been suggested) so as not to discourage development. PGS is intended to apply to all developments although exemptions may be made for home improvements and very small developments. It is also likely that concessions will be made for brownfield development.

Whilst developers will expect the landowners to bear the cost of PGS, this is something they may not be prepared to accept and, in reality, developers will have to decide whether to bear this risk rather than waiting to see what actually happens. Decisions should be made now and the matter of PGS should not be left to chance.

For more infomation about land development contact yildiz.betez@thackraywilliams.com