THE FINANCIAL IMPLICATIONS OF PLANNING GAIN SUPPLEMENT Sue Bridge Director of Planning and Development Bellway Homes Ltd Bellway

The policy may change as a result of consultation PGS introduction 2009/10 Discussion based on the assumption that PGS will be introduced in 2009/2010 as set out in the current consultation papers Health warning : These are my own views The policy may change as a result of consultation Bellway

Why worry about something that may not happen? The introduction of PGS already has significant potential implications for your business You should be putting safeguards in place now: Transitional arrangements Valuing PGS Paying PGS Scaled back Section 106 The law of unintended consequences Bellway

PGS – a synopsis Intended to be a claw-back on the increase in the value of land as a result of gaining a beneficial planning permission PGS is: Hypothecated for infrastructure Direct replacement for or supplement to section 106 obligations Not referred to as a tax Paid by the developer but intended as a deduction from the increase in land value. Not related to the price paid for the land Bellway

PGS – Transitional Arrangements There will be transitional arrangements which are liable to be introduced with very little warning and there are very few clues as to what these may cover Likely to be time limited - may be only five years Long term phased sites could be hit with double whammy of PGS plus 106 obligations Will apply only to sites with an extant consent or consents Will lose ability to take unimplemented consents into account when valuing CUV once they expire this could be as little as three years Will not cover sites under contract without a consent Contractual implications for e.g. MLV or tax break clauses. Long term land under option at risk Will apply to sites in for planning permission only if determined before PGS comes into force Bellway

Valuing PGS – is it a tax or a levy? PGS liability = PV – CUV CUV – the market value of the land the moment before pp is granted PV – the market value of the land the moment after full pp is granted Definition of market value for PGS purposes is that used for CGT, inheritance tax and SDLT Not the definition of Market Value as set out in Chapter 3 of the Red Book Bellway

Does that matter? Para 3.3 of Chapter 3 of the Red Book states: ‘Market value is understood as the value of a property estimated without regard to costs of sale or purchase, and without offset for any associated taxes’ Unless your contract makes PGS a specific deductible item, then yes it could matter, if the definition of market value for PGS is the definition used for tax purposes Bellway

Paying PGS PGS is payable on commencement of development and is payable by the developer within 60 days once HMRC issues a start notice. There is no provision for withdrawing a start notice or for amending the PGS liability once the start notice has been issued. There is no mechanism for pre-clearance of PGS valuations Bellway

Grant of implementable planning permission Decision to proceed to develop PGS valuation submitted to HMRC HMRC issue Start Notice PGS payable within 60 days Bellway

Paying PGS cont. Implications of payment mechanism: No facility for staggered payments, it’s all up front It is unlawful to start without an HMRC Start Notice You cannot get a Start Notice before you have an implementable consent Phased sites with outline consent valued at commencement of each phase Phased sites with full pp valued as a whole and PGS for whole site payable up-front Bellway

Scaled-Back Sec 106 Obligations Most incomplete element makes this more difficult to assess so this is a bit more speculative ‘Development Site Environment approach’ means new Sec 106s’ will not be significantly different Will only exclude contributions to wider off-site infrastructure Will still include affordable housing but concept of a common starting point should help Sec 278 remains unchanged More use of conditions a possibility Will be legislative prescription on scope of 106 obligations Bellway

The laws of unintended consequences The landowners’ reaction to PGS has largely been ignored. Will it lead to less land coming to the market? Grampian conditions – will their use be increased to limit development until necessary infrastructure is in place? Will PGS really capture the increase in value of the land or will it become another tax on the developer? Bellway