Tax on commercial landowners looks likely

A new tax on commercial landlowners looked likely Monday night despite a flurry of protest from business groups in the run-up to the pre-Budget report.

Consultation will take place on a new “planning gain supplement”, which will levy a tax on landlowners who see their land jump in value after gaining planning permission.

The move, predicted by the FT last month, is aimed at raising money to improve local infrastructure, as well as preventing landowners from making spectacular profits.

However, Gordon Brown’s decision to press ahead with the plan - recommended in the Kate Barker review of housing supply - comes despite concerted lobbying attempts by the property industry and the CBI.

Several attempts to introduce such a law by previous governments have ended in failure and this proposal “will not work”, said The Royal Institution of Chartered Surveyors.

A development land tax is likely to prompt huge legal rows over precisely how much of the land’s value is attributable to it having gained planning permission. Millions could be wasted on fees to surveyors and lawyers to resolve such disputes, according to the industry.

Stuart Robinson, head of planning at CB Richard Ellis, the property advisory group, said the plans were “barking mad”.

The measure, if introduced, would be a deterrent to developers, flying in the face of government plans to increase housing supply, he said. In addition, there was an existing system of planning gain agreements - Section 106 agreements - which already raised money from developers for local infrastructure improvements.

Mr Brown suggested that such a tax would not be introduced until 2008 at the earliest. “It will not happen for a long while, which takes the sting out of it a bit,” said Charles Beer, tax partner at KPMG.

The government has not specified what level the charge would be but landowners would not have to pay it until they started the development. It is understood that once they sold that development, they would be liable for further capital gains tax.

Bruce Mew, director of housing and regeneration at Ernst & Young, said it would be a “challenge” to set a rate that did not unduly penalise landlowners and developers.