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Matthew Hutton MA, CTA (fellow), AIIT, TEP highlights the progress of important future legislation.

Context

The 2005 Pre-Budget Report on 5.12.05 saw the announcement of a consultation on a new property tax on the increase in land value following the grant of planning permission.  The last year has seen a firming up of the proposals, though the projected start date has been put back at least a year, to ‘not earlier than 2009’.

The major features of the Government’s proposals

These are:

• A workable and effective PGS would not be introduced earlier than 2009: 
  
• PGS would be levied at a modest rate across the UK;
  
• PGS would apply to residential and non-residential land;
  
• A significant majority of PGS revenues would be hypothecated for local infrastructure;
  
• PGS revenues generated in the devolved administrations would be returned to the country in which they were generated; and
  
• Transitional arrangements will aim to ensure that development already formally in the planning process would not be subject to PGS.

After 1. Introduction, the contents of the consultation document are as follows:

2.  Overview of the PGS Process
3.  The Planning Permission: Calculating the PGS Due
4.  The PGS Start Notice
5.  The PGS Return
6.  Paying the PGS Charge
7.  PGS Compliance and HMRC Interventions
8.  Questions and Answers
9.  About the Consultation Process
Annex A. Glossary

Questions and Answers

Question 1: 
Will all developments need a PGS Start Notice?

Answer:  
PGS will not apply to small-scale home improvements. Such developments will not therefore require a PGS Start Notice, even where planning permission is necessary. This will exclude more than half of planning permissions granted. Development under the General Permitted Development Order 1995 that does not require planning permission will not need a PGS Start Notice. The Government is still considering thresholds for small-scale non-residential development.

Question 2:  
How will a prospective buyer of a property be able to find out if there is a potential PGS liability outstanding?

Answer:  
HMRC plan to make information about the status of the PGS charge on each notified development publicly available. This would include such things as whether a PGS Start Notice has been issued or whether a PGS Stop Notice has been issued. This will allow members of the public, including legal representatives such as solicitors, to check that the PGS liability for a specific development has been discharged and give reassurance to purchasers of a development that there is not an outstanding PGS liability. HMRC are interested to hear stakeholders’ views on what would be the best channel for making this information available.

Question 3:  
Will it be possible to pay the PGS liability at the same time as filing the PGS return?

Answer:  
Yes. HMRC plan to allow payment to be made electronically at the same time as a developer files the electronic PGS Start Notice application and return.

Question 4:  
What happens where a developer replans a development and applies for a fresh planning permission after having received a PGS Start Notice and having paid the PGS liability on the previous planning permission?

Answer:  
The grant of the new full planning permission would constitute a new charging event to PGS, so the developer would have to apply for a fresh PGS Start Notice which would be a new point of charge. It is proposed that the value of the earlier planning permission will be reflected in the CUV and PV used when applying for the new PGS Start Notice. How land will be valued when replanning occurs is considered in more detail in Chapter 7 of Valuing planning gain.

Question 5:  
Won’t it take a long time to resolve valuation disputes where developers can’t agree valuations with HMRC?
 
Answer:  
While there would be no fixed limit on the length of an intervention into a PGS return, HMRC are mindful of the rapid nature of the development process and the developer’s need for early certainty. Therefore, HMRC will seek to complete each intervention as quickly as possible with the cooperation of the developer.
 
To do this, HMRC will devise accelerated processes to move cases on to settlement, particularly in the small minority of cases where valuations need to be referred to the Lands Tribunal or its successor.

Responses sought (by 28 February 2007)

Q1 What difficulties (if any) might there be in making electronic communication the sole channel of communication for the application and return of information for PGS Start Notices and PGS returns? Are there any particular groups who might face problems accessing or using electronic services either personally or via an agent from the outset of the new regime?

Q2 This paper suggests allowing 60 days for payment of the PGS liability after the issue of the PGS Start Notice. Would it be preferable to pay the PGS liability at the same time as filing the PGS return, to limit contact with HMRC? 

Q3 If you consider a pre-commencement agreement service should be offered, how would you design it to take account of the problems of administrative complexity and cost? In particular, how should any charges for the service be set?

Q4 Do the proposed definitions of full planning permission clarify sufficiently what development will be liable to PGS and when the valuation dates will be?

Q5 What further information do you require in order to determine whether a planning permission will be liable to PGS and when the valuation date will be?

Q6 A PGS Start Notice is required before development may commence. Does the definition of commencement of development in the Town and Country Planning Act 1990 require further clarification for PGS purposes?

Q7 What documentation would developers want HMRC to supply in response to an application for a PGS Start Notice? 

Q8 What difficulties (if any) would it cause developers if HMRC made electronic payment mandatory? Are there any particular groups who might face problems accessing or using electronic payment methods?

Q9 When might a PGS liability need to be transferred to another person?

Q10 How should information on the status of the PGS charge on a development be made available and what information should be offered? Apart from purchasers of a development who wish to establish that there is no outstanding PGS liability on a development, are there other circumstances in which a person might want to check information held on such a register?

Q11 The Government recognises that allowing a 12-month period in which to challenge a PGS return would not give sufficiently early certainty to developers and the time limit for PGS will need to be substantially less than 12 months. What do you believe would be a reasonable time limit beyond which HMRC should no longer be able to amend a PGS return or open an intervention, provided full disclosure of the facts has been made by the developer?

(HMRC Consultation document ‘Paying PGS: a Planning Gain Supplement technical consultation’ 6.12.06)

Matthew Hutton MA, CTA (fellow), AIIT, TEP

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php