CAPITAL TAXES

Planning Gain Supplement (PGS)

Following last year’s Pre-Budget Report the government issued a consultation paper on the introduction of a PGS. Following that paper further consultation is now being undertaken on valuing and paying a PGS. Legislation may be introduced to tax some of the windfall gain accruing to landowners from the sale of their land for residential development to capture some of the uplift in value arising when full planning permission is granted.

The following are some of the principles that may be considered:

• a system for gathering information as to the value of land proposed for development
• the government would then set a tax rate on these values, to be paid by the developer
• the granting of residential planning permission would be contingent on the payment of the PGS
• there may be a lower rate for developments on brownfield sites
• consideration may be given to allowing developers to pay their contributions in instalments over a period of time.

The government recognises that the introduction of a PGS would need to be accompanied by transitional measures.  These would help developers already engaged in land sales where contracts had been drawn up before the charge was introduced or those who held large amounts of land where planning permission had yet to be secured.

Stamp Duty Land Tax (SDLT) anti-avoidance

An anti-avoidance measure has been announced to tackle a number of SDLT schemes. The measure takes effect on or after 6 December 2006 but there are transitional provisions to protect those who entered into contractual commitments before 2pm on 6 December 2006.

The first change provides that where one person disposes of a chargeable interest and another person acquires that interest, or one derived from it, and:

• a number of transactions are involved in the disposal and acquisition, and
• the SDLT on all these transactions is less than that which would have been chargeable on a single land transaction

then the transactions are disregarded and there is a notional land transaction on which the chargeable consideration is the total consideration given or received.

The second change is to make a number of alterations to transfers into and out of partnerships and transfers of partnership interests.

Capital loss anti-avoidance measure

In Finance Act 2006, specific rules were introduced to target ‘contrived’ capital losses created by companies. A loss accruing to a company is not an allowable loss if it arises as part of arrangements which have a tax advantage as their main purpose or one of the main purposes.

HMRC have become concerned that persons other than companies were involved in the creation of ‘contrived’ capital losses to secure a tax advantage. Therefore for capital losses arising on disposals on or after 6 December 2006 the anti-avoidance rule for companies is extended to all persons liable to capital gains tax including individuals, trustees and personal representatives.