planning reform: a future without planning inquiries, s.106 agreements – or lawyers?

Gray’s Inn Tax Chambers

PLANNING REFORM: A FUTURE WITHOUT PLANNING INQUIRIES,

S.106 AGREEMENTS – OR LAWYERS?

Hui Ling McCarthy, Gray’s Inn Tax Chambers

21 November 2007


Where did this all begin?

“Government should actively pursue measures to share in windfall development gains accruing to landowners so that increases in land values can benefit the community more widely. Capturing part of these values will provide a funding stream for a number of other policies that will support increasing housing supply.

Government should impose a Planning-gain Supplement on the granting of planning permission.”

Barker Review of Housing Supply, March 2004


Where did this all begin?

“The Government agrees with the recommendations of the Barker Review that it is in principle fair to fund proposed measures out of the uplift in land values experienced during the development process”

Budget 2004 – Delivering stability: securing our future housing needs


Where are we now?

“The Government will legislate in the Planning Reform Bill to empower Local Planning Authorities in England to apply new planning charges to new development, alongside negotiated contributions for site-specific matters…

Legislation implementing PGS will not be introduced in the next Parliamentary session.”

2007 Pre-Budget Report and Comprehensive Spending Review


How did we get here?

2001 Consultations on a mandatory tariff

2003 Consultations on an Optional Planning Charge

March 2004 The Barker Review

Budget 2004

Dec 2005 The Government’s Response to the Barker Review

PGS: A consultation

Dec 2006 Pre-Budget Report 2006

Paying PGS: Technical Consultation

Valuing Planning Gain: Consultation


How did we get here?

20 March 2007 Planning-gain Supplement (Preparations) Act 2007

21 March 2007 Budget 2007

11 July 2007 PM’s Statement: Draft Legislative Programme

23 July 2007 Housing Green Paper: Consultation

1 Oct 2007 Industry Response to Housing Green Paper

9 Oct 2007 Pre-Budget Report 2007

Minister’s Statement


Haven’t we been here before?

1948-1952 Development Charge

1967-1970 Betterment Levy

1976-1985 Development Land Tax


Development ChargeThe Town and Country Planning Act

1947

Objective

“To pass ‘betterment’ due to planning decisions by local authorities to community, not landowner”


Development ChargeThe Town and Country Planning Act

1947

• “Buy” permission to develop or change of use from Central Land Board

Development Charge =

(Value with permission – Existing use value) x 100%

– Complex– Discouraged development, encouraged speculation– Charge applied to “property”, not to land– Didn’t raise enough money!


Betterment LevyThe Land Commission Act 1967

Objective

“To return to the community a substantial part of the development value created by the community”


Betterment LevyThe Land Commission Act 1967

• “Chargeable act” by landowner

Betterment Levy =

40% x Net Development Value

(Net Development Value = Market Value – Basic Value)

– Uncertainty– Timing– Reduced availability of land


Development Land TaxDevelopment Land Tax Act 1976

Objective

“To restore to the community the increase in value of land arising from its efforts”



• HMRC to administer in conjunction with Capital Gains Tax (by amendment to Taxes Management Act 1970)

• Charged on “realisation” of development value on:

– Disposal– “Deemed disposal” on carrying out of development



Development Land Tax =

80% x Net Development Value

Net Development Value =

Disposal Proceeds – highest “Basic Value”

Basic Values:

“Base A” = acquisition cost + improvement expenditure + other additions

“Base B” = (Current Use Value at disposal + improvement expenditure) x 110%

“Base C” = (Acquisition Cost + improvement expenditure) x 110%



AVOIDANCE!

• Fragmenting land ownership to utilise annual exemptionsIRC v Bowater Property Developments Ltd [1988] All ER 495

• Conversion of receipts from capital to incomeHitch and Others v Stone (Inspector of Taxes) [2001] STC 214



UNCERTAINTY

• Status of an unincorporated association?Frampton and Another v IRC [1987] STC 273

• Timing of a deemed disposalIRC v Metrolands (Property Finance) Ltd [1982] 2 All ER 557



COMPLEXITY• Exceptions

• Exemptions

• Allowances

• Conditions

• Special Cases

• 94 pages of Explanatory Notes!


Development Land Tax 1976-1985

“Any suggestion that the Act should be retained and amended because the threat of repeal causes a greater level of uncertainty, should be opposed. A bad Act is a bad Act. A house of cards is no sounder because it has mosaic tiles on it”

Estates Gazette, 2 April 1977


Planning-gain Supplement

Objective

“For the wider community to share in the wealth created by planning decisions in their area, given the sizeable uplift in land value that planning decisions often confer.”

Planning-gain Supplement: a consultation, December 2005


Planning-gain SupplementLessons learned?

“The Barker Review noted that the taxes had not been as successful as planned, particularly since complex design and high rates of tax led to widespread avoidance and created incentives to hold back development.”

Planning-gain Supplement: a consultation, December 2005


Planning-gain SupplementLessons learned?

Planning-gain Supplement to:

• Only capture a “modest” proportion of uplift

• Create clear definitions of value

• Manage cost through self-assessment

• Minimise avoidance


Planning-gain SupplementLiability

1. Scope

2. Chargeable Person

3. Interaction with other taxes


Planning-gain SupplementProcess

1. Planning permission granted

2. Development Start Notification

3. HMRC issue PGS Start Notice

4. Payment of PGS

5. Compliance

6. Appeals


Planning-gain SupplementCalculating PGS Due

1. Relevant permission

2. The PGS Calculation

PGS Liability = Uplift x PGS Rate (%)

Uplift = Planning Value – Current Use Value


Planning-gain SupplementRecycling PGS Revenues to Local Level

Option 1 – Grants in direct proportion to revenues raised

Option 2 – Grants in proportion to infrastructure need


Planning-gain SupplementCriticisms

“The logic escapes us completely. Indeed, if PGS already existed, we would understand that the Government might wish to abolish it in order to eliminate the discouraging effect that is has on landowners.”

Response by the Chartered Institute of Taxation, February 2006


Planning-gain SupplementCIOT Criticisms

• Discouraging development

• Too complex

• Valuation problems (c.f. Langham v Veltema [2004] STC 544)

• Allocation of revenues

• Prejudicial to VAT zero-rating?


Planning-gain SupplementIndustry Criticisms

• Disincentive to development

• Disempowers local authorities

• Divorces development from infrastructure delivery

• Extent of liability uncertain

• Complex and impractical


Planning-gain SupplementHousing Green Paper 2007 -

Alternatives

Approach A – Lower rate PGS; lesser s.106 scale-back

Approach B – PGS limited to greenfield sites

Approach C – Charges based on expanded system of planning obligation

Approach D – Statutory local authority planning charge


Planning-gain SupplementIndustry Response: The Alliance

Developer Contributions to Infrastructure:

A submission from the property and house building industry

• Home Builders Federation

• British Property Federation

• Major Developers Group

• London First


Planning-gain SupplementIndustry Response: Tariff-based

Alternative• Tariff set at local level

• Determined according to planned infrastructure needs

• Levied on all but most minor development

• Applied to net increase in development

• Paid by developer directly to local authority

• Provisions for essential site mitigation needs to be met under s.106

• Affordable housing maintained as separate s.106 process


Tariff-based AlternativePractical Difficulties to Overcome?

• Certainty?

• Transparency?

• Viability?

• Lengthy negotiation process?

• Local administrative burden?

• Timing?

• Right of appeal?

planning reform: a future without planning inquiries, s.106 agreements – or lawyers?

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