02 April 2015 | Online since 2003



12 February 2014|Finance,News,Property News

Beware tax burden on planning uplift


Landowners are increasingly benefiting from development uplift in land values – but must plan carefully to avoid hefty tax bills.

“The past 18 months have seen a flurry of farmers looking at developing land, following the radical change in planning rules in favour of development,” says Neil Cox, senior rural services manager at accountant Old Mill. “This, combined with delays among many local authorities to complete their Local Development Plan, means a number of parcels of land that previously would not have been identified for development have successfully secured planning permission.”

However, even where the farmer does not intend to seek planning permission, land that is suitable for development could carry a ‘Hope Value’. “This would boost values significantly above agricultural levels, triggering a substantial capital gain upon gift or sale of the land.”

While Capital Gains Tax (CGT) can sometimes be deferred, Hope Values can be more troublesome if not recognised during a farmer’s lifetime, potentially resulting in a hefty Inheritance Tax (IHT) burden. “Beneficiaries could end up paying 40% in IHT, as Hope Values are not eligible for Agricultural Property Relief,” says Mr Cox. “Fortunately, advance tax planning can avoid this problem in many circumstances.”

It is also increasingly commonplace - particularly in the case of renewable energy projects - for a landowner to enter into either an Option Agreement or a Promotion Agreement several years in advance of actually selling their land to a developer.

“However, there are some key CGT, IHT and VAT issues around the way arrangements are structured, which could cost landowners hundreds of thousands of pounds in the long term if correct advice is not taken.”

Under an Option Agreement the landowner agrees to sell the land for an agreed price at some point in the future, if called upon to do so by the buyer. Options are normally exercised only on the proviso that planning permission is obtained within a specified time frame, says Mr Cox. “This is generally a capital disposal, with the gain being charged to CGT.”

A Promotion Agreement is an arrangement under which an agent works with a landowner to maximise the land value in return for a percentage of the ultimate profits on sale to a developer. “The tax treatment on the resulting proceeds can differ substantially, depending on the precise nature and wording of the agreement, and there are pitfalls for the unwary,” he adds.

“In the worst case scenario, the profit could be treated as a trading transaction and charged to Income Tax at up to 45%, with the added liability of National Insurance contributions. Alternatively, it may be charged to CGT at slightly more palatable rates of up to 28%.”

Depending on what the asset has been used for during the landowner’s period of ownership, Entrepreneurs’ Relief may be available to reduce the rate of CGT to 10%, says Mr Cox. “The VAT implications of such transactions are also very complex, and can differ according to the nature of arrangement.

“Considering the substantial values associated with development land, and the fundamental importance in the detail of the legal agreements entered into, the difference between a 45% rate of tax and 28%, or even 10%, is significant, and highlights the importance of planning as early on in the process as possible.”

Download



Comments


No comments posted yet. Be the first to post a comment

To post comment without approval login or register

Display name

Please enter your name

Email (optional)
Comment

Please enter your comment

Post Comment

Your comment submitted successfully.Please wait for admin approval.

Some error on your process.Please try one more time.



Jobs


17 March 2015
Health Care Assistant
Health Care Assistants Little Bramingham Farm - Luton Basic - £7.13 p.h. / £7.20 p.h. with NVQ Full & Part Time hours availab...

12 March 2015
Operative
Barton Grange Landscapes, Cardwell Farm, Barton Preston. Operative required with experience of commercial grounds maintenance...

18 March 2015
Mechanical Maintenance Engineer
Food, FMCG, Meat, Dairy, Fish, Seafood, Engineering, Maintenance, PPM, Electrical, Mechanical, Engineer,. Our client, a food ...

22 March 2015
Market Manager - Agriculture / Horticulture - Chemicals
The role requires sales experience / technical knowledge of the UK Agriculture / Horticulture Industry. They are now seeking ...

30 March 2015
Chefs
Shustoke Farm Barns Wedding Venue is looking for Chefs to join our team. For us it's all about serving simple, high quality f...




Top stories you may have missed
23 March 2015 | Cattle

UK butchers face difficulties to recruit...

Butchers in the UK are losing a generation through lack of training opportu...


20 March 2015 | Arable

Dust - the secret fertiliser?

NASA research has revealed how dust blown from the Sahara desert helps supp...


19 March 2015 | Arable

The Budget 2015: A Farmer's Budget?

“In the run up to the Budget 2015 most commentators were predicting that th...


17 March 2015 | News

UK's first floating solar power system l...

The UK’s first fully operational floating solar panel system has been unvei...


13 March 2015 | Animal Health

Labour and Conservatives clash over badg...

Axing the badger cull in England and Wales will save more than £120 million...


12 March 2015 | News

Solar could be cheapest energy source by...

By 2025, solar power could become one of the cheapest forms of energy in ma...


11 March 2015 | Finance

English buyers turn their attention to S...

Demand for Scottish farm land remains strong and continues to be better val...


9 March 2015 | Cattle

2020 vision for the Welsh red meat indus...

The Welsh red meat industry should aim to increase sales by at least 34 per...


6 March 2015 | News

MP raises egg industry concerns on trans...

Fears about the impact that a proposed transatlantic trade agreement could ...


Stay safe and legal when flying drones

The use of Unmanned Aerial Vehicles and Unmanned Aircraft Systems - or dron...