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The Tax Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) has expressed concerns about the underlying principles of Planning Gain Supplement (PGS).

The PGS was proposed by Kate Barker in her review of housing supply as a means of releasing the land value created by the planning process to help finance the infrastructure needed to support new housing and growth. Broadly, it will be based on the uplift in value arising as a result of the planning process, although no definite rates and thresholds have been published to date.

The Faculty responded recently to two consultation documents on the proposed PGS, respectively on valuing PGS (TAXREP 15/07) and paying PGS (TAXREP 16/07). Key concerns are as follows:

• The policy objectives behind the tax (encouraging more land to be brought forward for development and ensuring that planning gains are taxed) appear to be in conflict, with the result that PGS is likely to prove unworkable.
• The omission to provide some indication of the likely rate of the new tax other than at ‘a modest rate’ (Pre-Budget Report 2006 para 3.119) is a serious weakness. Proposals cannot be examined properly without publication of the proposed rate of tax, and threshold.
• The tax will not work because valuations of interests in land are central to the operation of the tax and this will not provide a sufficient level of certainty.
• Reliance will have to be placed on professional opinions of the value of land, with disputes likely and high compliance costs.
• Tax will be charged by reference to area of land covered by planning consent rather than the area of land owned by the developer, and also by reference to freehold values rather than the value of the actual interest. This is likely to lead to unfairness and may have little or no relation to the underlying economic reality.

Finally, the Faculty is concerned that PGS will increase the costs of regeneration projects such as the 2012 Olympics.

The Institute believes that there may be other, more straightforward, ways of achieving similar objectives, but valuation issues are likely to remain a major concern.

Links

ICAEW: Planning Gain Supplement – Tax Faculty concerns

ICAEW: TAXREP 15/07

ICAEW: TAXREP 16/07