Land News

Development land tax would prove to be a major disincentive

IC Teeside, 17th November, 2004

The spectre of a Development Land Tax returning to haunt the whole process is a very real threat to development, especially if proposed works are financially marginal.

With the Deputy Prime Minister and the Chancellor of the Exchequer both putting their weight behind the proposal to tax the rise in the value of property as a result of gaining planning consent, there is considerable concern that the number of property transactions will fall, as will property values.

When one considers the level of development that has taken place in the North-East in recent years, and the transformation of city centres such as Newcastle as a result, the notion that this level of success should be slowed, if not stopped, is hard to accept.

Surely development needs encouragement and not hurdles and obstacles in its way?

There is already a mechanism in place through Section 106 agreements that are charges on development to mitigate any negative impact. Though cumbersome to administer, they do work.

This year's Labour Party conference was an eye- opener.

The theme put about by John Prescott is that developers will subsidise the development of mixed-use schemes, which would provide much needed homes in particular, through a tax on rising land values.

Similarly Gordon Brown indicated that recommendations on funding housing projects put to the Government earlier this year would be implemented.

This would indeed be a tax on increasing land values either as a tax on a successful planning application or through a reform of planning gain.

It is worth remembering the impact of earlier development land taxes. In each instance, development activity greatly reduced.

Quite simply, why develop if you are going to be further taxed?

As a result there was a shortage of developable land that, as a consequence, drove up the price of property both in the commercial sector and the residential sector.

There is already in place the stamp duty land tax (SDLT) which is a transactional tax. So if a company leases property several times in a short space of time, the SDTL is paid every time.

If a company wishes to relocate to the North-East it could find SDLT exempt areas, described as Disadvantaged Areas.

However, if the landowner adopts a "why bother if I have to pay a further tax" stance, the development process will halt and the massive levels of investment that we have seen so far in the region will possibly be referred to as the "good old days".

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