Development land collaborations – update

In our Autumn 2016 edition, we outlined how multiple land owners can join together with a view to securing planning permission on a larger site thereby making it an attractive proposition for developers.

Land joint ventures can take various forms depending on the commercial and tax drivers, but this often results in quite complex setups, particularly if certain land owners are seeking entrepreneurs’ or rollover relief to alleviate their capital gains tax (CGT) bills. Additionally, the agreement needs to be carefully structured to avoid land proceeds being taxed twice.

One possible solution to the potential double CGT charge is a land pooling arrangement where all landowners own a share of the development land committed to the “pot”.

The idea behind land pooling is to promote sustainable development by equalising values through a pooling process in recognition that all the land is integral to the development whether used for high value prime residential, for community infrastructure or parkland. It helps to promote a ‘patient capital’ approach rather than the need to maximise short term returns. However, this sort of arrangement can lead to a loss of valuable tax reliefs such as entrepreneurs’ relief.

By contrast, the traditional development model involves the landowner granting an option to the developer to buy the land once planning permission has been obtained. The option is exercised and the land is then sold. Release of the land to the developer is deferred which, in turn, leads to a condensed construction phase to maximise short term returns. Landowners also have an incentive to be the last to sign-up to a development because they can gain extra (ransom) value by being the final piece that unlocks the site.

Both land pooling and the traditional option route have their own tax issues which we hope the government are now looking to address.

In February 2017 the Department for Communities and Local Government published ‘Fixing our broken housing market’ setting out the government’s proposals to boost housing supply and create a more efficient housing market. The White Paper includes a consultation on specific planning proposals including how land pooling can make an effective contribution to assembling land for sustainable development.

The Chartered Institute of Taxation have made a submission that tax cannot be sensibly excluded from wider consultations such as this one, in view of the potential tax barriers of pooling. The submission considers briefly a land pooling vehicle that effectively freezes the tax status of the land at the point of entry into the pooling vehicle, preserving the status of the land pre-pooling. An alternative route might be a wider permissive statutory power to grant particular tax breaks to landowners participating in a development that satisfies the defined requirements of a sustainable development with the costs of exercising the power met, at least in part, out of the development.

It is hoped that the submission may lead to further discussion to develop potential solutions but in the meantime specialist advice should be sought on the structuring options if the optimal balance between the commercial and tax drivers is to be found.

To find out what services we offer, visit our Agriculture and Bloodstock page. Alternatively, if you would like any further information on the issues raised above, please contact us using our contact page. 


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