New land tax could limit development UK
New land tax could limit development
2 March 2006 source: http://www.easier.com/view/News/Property/article-42199.html
A new land tax proposed by the Government may stifle housing and business development and is based on a fundamental misunderstanding of how the property market operates, say RICS (Royal Institution of Chartered Surveyors).
The Planning Gain Supplement (PGS) would be paid by developers as a portion of the uplift in land value attained when planning permission is granted. But, collecting the money centrally under the new PGS proposals is fraught with problems. Waiting for government to pay out for infrastructure work that may be essential for development to begin or proceed brings unnecessary uncertainty and risk to projects that could discourage development.
The money is intended to be used to fund local infrastructure projects to accompany large developments. This already happens to some extent under current Section 106 agreements where developers directly undertake local improvements. RICS and other property industry bodies have continually lobbied that a tariff-based system would be far more workable and efficient. However, the Government looks set on PGS.
RICS has made several recommendations in its submission to the Government consultation to make PGS a more practical proposition. Including:
Payment by the developer should be calculated when the final product is sold, not when planning permission is granted
PGS should be focused only to large scale schemes with smaller schemes subject to existing Section 106 arrangements
Further clarification is needed on how a large surplus of PGS will be used to finance infrastructure elsewhere
The majority of PGS revenue should be recycled directly to the local level.
RICS spokesman Brian Berry said:
‘Originally the Government saw this working like the National Lottery with money coming in centrally and then dished out to worthy causes - places where infrastructure would be most beneficial. But they may well rethink now they have realised that many large schemes depend on a certain amount of infrastructure being in place before work can start. Providing this centrally would mean government acting as a kind of construction financier. The stuff of nightmares for them and developers.
‘Also, there is as lack of understanding about how land is valued. The Government must avoid setting up an adversarial system where local authorities and developers are locked in combat over the notional value brought by planning permission. This would act as a disincentive for development and an obstacle to the greater level of house building so urgently needed to increase affordability