Planning Gain Supplement - not the way ahead

The proposed introduction of a planning gain supplement (PGS) will do little to boost the UK's housing supply says ACCA (the Association of Chartered Certified Accountants.

ACCA's response to Government consultation on PGS The proposed introduction of a planning gain supplement (PGS) will do little to boost the UK's housing supply, and may in fact raise housing costs, says ACCA (the Association of Chartered Certified Accountants) today in response to the Government's consultation on PGS.

In March 2004's Barker Review into Housing Supply, PGS was recommended as a means of tackling the problem, saying that "Government should use tax measures to extract some of the windfall gain that comes to landowners from the sale of their land for residential development.

But ACCA says that by itself, PGS will not necessarily help to increase the number of new houses built in the UK, which means that further increases will need to be achieved through a wholesale change in planning requirements.

Because of this, ACCA believes there is no justification for a tax on planning gain.

Chas Roy-Chowdhury, Head of Tax at ACCA, said: "PGS isn't workable in isolation".

"The system needs to be as simple as possible so that we don't return to the complicated - but thankfully short-lived days - of Development Land Taxes".

"This was both complex and expensive to administer, and didn't generate the expected funds or levies".

"But PGS isn't an issue just for big landowners with vast plots of land for sale; it can also affect the small landowner who wants to develop their land and it could affect the amount of money they make from a sale".

"But the regulations are very opaque and could cause confusion for the small land owner looking to benefit from a sale".

The whole housing planning and tax structure requires simplicity, says ACCA, so that developers can do their work unencumbered.

While most developers will have their finances in place at the beginning of a development, cash flow is important and the earlier the tax has to be paid the greater the actual cost.

This in itself is a deterrent to planning and building work.

Chas Roy-Chowdhury concluded: "If PGS is paid by developers it will probably have the effect of increasing housing costs".

"Developers would discount the price they were prepared to pay for land to take into account their PGS liability".

"If this were the case, it would be necessary to take this discount into account when calculating the actual planning value of the land".

"And since landowners will receive less, the effect of PGS may discourage them from putting land up for sale for development".

Frustratingly, the consultation document for PGS says that rate of taxation for planning gains will be a "modest rate of tax", but no rate is actually given.

And ACCA also questions whether the intended recycling of PGS revenue at local level will actually bring benefit.

The logical conclusion is that local authorities will be worse off and that developers will in fact pay more.

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