Transcript PLANNING REFORM: A FUTURE WITHOUT PLANNING …

PLANNING REFORM: A FUTURE
WITHOUT PLANNING INQUIRIES,
S.106 AGREEMENTS – OR LAWYERS?
Hui Ling McCarthy, Gray’s Inn Tax Chambers
21 November 2007
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
Haven’t we been here before?
1948-1952
Development Charge
1967-1970
Betterment Levy
1976-1985
Development Land Tax
Gray’s Inn Tax Chambers
Development Charge
The Town and Country Planning Act 1947
Objective
“To pass ‘betterment’ due to planning decisions by
local authorities to community, not landowner”
Gray’s Inn Tax Chambers
Development Charge
The 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!
Gray’s Inn Tax Chambers
Betterment Levy
The Land Commission Act 1967
Objective
“To return to the community a substantial part of the
development value created by the community”
Gray’s Inn Tax Chambers
Betterment Levy
The 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
Gray’s Inn Tax Chambers
Development Land Tax
Development Land Tax Act 1976
Objective
“To restore to the community the increase in value of
land arising from its efforts”
Gray’s Inn Tax Chambers
Development Land Tax
Development Land Tax Act 1976
• 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
Gray’s Inn Tax Chambers
Development Land Tax
Development Land Tax Act 1976
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%
Gray’s Inn Tax Chambers
Development Land Tax
Development Land Tax Act 1976
AVOIDANCE!
• Fragmenting land ownership to utilise annual exemptions
IRC v Bowater Property Developments Ltd [1988] All ER 495
• Conversion of receipts from capital to income
Hitch and Others v Stone (Inspector of Taxes) [2001] STC 214
Gray’s Inn Tax Chambers
Development Land Tax
Development Land Tax Act 1976
UNCERTAINTY
• Status of an unincorporated association?
Frampton and Another v IRC [1987] STC 273
• Timing of a deemed disposal
IRC v Metrolands (Property Finance) Ltd [1982] 2 All ER 557
Gray’s Inn Tax Chambers
Development Land Tax
Development Land Tax Act 1976
COMPLEXITY
• Exceptions
• Exemptions
• Allowances
• Conditions
• Special Cases
• 94 pages of Explanatory Notes!
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
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
Gray’s Inn Tax Chambers
Planning-gain Supplement
Lessons 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
Gray’s Inn Tax Chambers
Planning-gain Supplement
Lessons learned?
Planning-gain Supplement to:
• Only capture a “modest” proportion of uplift
• Create clear definitions of value
• Manage cost through self-assessment
• Minimise avoidance
Gray’s Inn Tax Chambers
Planning-gain Supplement
Liability
1. Scope
2. Chargeable Person
3. Interaction with other taxes
Gray’s Inn Tax Chambers
Planning-gain Supplement
Process
1. Planning permission granted
2. Development Start Notification
3. HMRC issue PGS Start Notice
4. Payment of PGS
5. Compliance
6. Appeals
Gray’s Inn Tax Chambers
Planning-gain Supplement
Calculating PGS Due
1. Relevant permission
2. The PGS Calculation
PGS Liability = Uplift x PGS Rate (%)
Uplift = Planning Value – Current Use Value
Gray’s Inn Tax Chambers
Planning-gain Supplement
Recycling PGS Revenues to Local Level
Option 1 – Grants in direct proportion to revenues raised
Option 2 – Grants in proportion to infrastructure need
Gray’s Inn Tax Chambers
Planning-gain Supplement
Criticisms
“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
Gray’s Inn Tax Chambers
Planning-gain Supplement
CIOT Criticisms
• Discouraging development
• Too complex
• Valuation problems (c.f. Langham v Veltema [2004] STC
544)
• Allocation of revenues
• Prejudicial to VAT zero-rating?
Gray’s Inn Tax Chambers
Planning-gain Supplement
Industry Criticisms
• Disincentive to development
• Disempowers local authorities
• Divorces development from infrastructure delivery
• Extent of liability uncertain
• Complex and impractical
Gray’s Inn Tax Chambers
Planning-gain Supplement
Housing 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
Gray’s Inn Tax Chambers
Planning-gain Supplement
Industry 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
Gray’s Inn Tax Chambers
Planning-gain Supplement
Industry 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
Gray’s Inn Tax Chambers
Tariff-based Alternative
Practical Difficulties to Overcome?
• Certainty?
• Transparency?
• Viability?
• Lengthy negotiation process?
• Local administrative burden?
• Timing?
• Right of appeal?
Gray’s Inn Tax Chambers