Planning Gain Supplement Update

Increases in property prices led the Government some time ago to consider a new tax (more accurately, the reintroduction of the old Development Land Tax (DLT) – which was abolished many years ago – in a repackaged form) to levy a tax on the ‘planning gains’ which accrue to properties.

The proposed new tax, called Planning Gain Supplement (PGS) was mooted in 2005, but rather surprisingly not mentioned in Chancellor Gordon Brown’s March 2006 Budget speech. Despite not being in the Budget, it is still firmly on the agenda and could be brought in as early as 2008.

The basic idea of the tax is that someone who owns property for which they obtain planning permission will be taxed on the uplift in value that the planning permission produces. It is proposed that a proportion of the tax is passed back to the authority granting the planning permission so that the community will benefit from the permissions granted. It is likely that local authorities will use the windfall income to relieve their stretched capital budgets.

One practical effect of the introduction of PGS for landowners is that property prices for developable land may well be depressed as developers seek to mitigate the impact of the tax. Another is that as the implementation date nears, getting planning decisions from authorities may become more difficult and take longer. There will also have to be a tax relief regime similar to that which operated under the DLT to give tax relief against Capital Gains Tax for PGS suffered.

Interestingly, it is suggested that residential planning permissions (other than mere home improvements) will be caught by PGS and that the tax will bite if developers with existing permissions do minor site development works – normally done to keep planning permissions ‘live’.

PGS is currently the subject of an extensive consultation process between the Government and interested bodies. It is not yet known when more details of how PGS will work will be made public, although the autumn pre-Budget statement looks a likely bet. However, if you have property which might benefit from planning permission, it is worth thinking about what you should do in anticipation of PGS.