Planning Gain Supplement
Following several unsuccessful attempts to capture a share of the uplift in value that results from a grant of planning permission, the Government has put forward proposals for a new tax to be known as Planning Gain Supplement (“PGS”). The consultation paper, which was released on 5 December 2005, suggests that PGS may succeed where its predecessors failed, as it is far less complex. It proposes that PGS will simply be a percentage of the uplift in value of the property arising from the grant of full planning permission (or approval or reserved matters if later).
The uplift in value of the property will be the difference between the market value after the grant of the planning permission and the current use value. The assumptions to be made when establishing the market value are that the relevant land being developed is freehold, unencumbered and is sold with vacant possession. These assumptions are not appropriate to all situations and may therefore cause problems.
The date of valuation is to be the date when full planning permission is granted, or in the case of outline planning permission, the date when the reserved matters are approved. The current use value will thus be the value immediately before the date of valuation.
So far there has been little indication as to the rate of tax, although it has been suggested that it could be as much as 20% of the uplift in value. A lower tariff for brownfield sites may be considered to encourage development and allowances may be made for any planning permissions granted before the new planning permission which also gave rise to PGS. Furthermore decontamination costs and money payable under s.106 agreements are likely to be taken into account when calculating the tax liability.
The tax will be payable as a lump sum on implementation of full planning permission. i.e. when development is commenced. The person implementing the planning permission will have to serve a Development Start Notice on the local planning authority or HMRC and it is proposed that person will be liable to pay PGS. The payment will be self-assessed and to secure payment, the Government has proposed penalties and a system of interest.
PGS will have considerable impact on developers, who will have to carefully consider the effects of the tax (which is due to come into force in 2008), on the price of the property. They will have to obtain sufficient information from the seller in order to assess the value of the property effectively on the date of valuation and may have to negotiate a lower price with the seller, in order to off-set their tax liability.
The revenue generated by this tax will be distributed to local and other authorities for the development of infrastructure and community facilities. Payments and obligations under s.106 agreements will therefore be of lesser importance post-PGS, although they may continue to be of use in relation to the development site itself and affordable housing. Contributions by developers to off-site improvements will no longer be necessary as such developments will be funded by PGS. There are however, no plans to reimburse the developer in the event that the money is not utilised for the improvements envisaged.
Some planning permissions (such as those for home improvements) will be exempt from PGS and the Government may extend the ambit of the exempted category to small scale developments on non-residential properties