Colin Laidlaw CTA AIIT
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View all peoplePublished by Colin Laidlaw on 30 October 2019
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Our clients are increasingly looking at ways to utilise their assets more effectively, in a tax efficient manner. Coupled with the relaxation in planning rules and the opportunity that more land is to be used for housing, this inevitably leads to thoughts about the land they own and whether a sale would be the right course of action. To help them achieve the best price for the land they often engage with land promoters and/or developers.
There are two main arrangements in this regard:
1. Land promotion agreements (also known as planning promotion agreements)
These are arrangements where a promotor aims to obtain planning agreement on your land and, once successful, finds a buyer. There is often an upfront (non-refundable) payment from the promotor to the landowner for entering into the agreement.
The promoter charges a fee to the landowner for its services based on a percentage of the selling price, and it may also reduce the sale proceeds by the planning costs it has incurred.
The main benefit for the landowner is that he/she doesn’t have to incur a considerable upfront cost in obtaining planning permission especially as the time to obtain it can be lengthy. If planning is not obtained, there is normally no charge. This benefit is offset by the fees payable to the promotion agent for its services.
2. Option agreement
Under this arrangement a developer takes on the responsibility of securing planning permission and also has an option to buy the land at a certain point (typically once planning has been obtained). The developer’s purchase is for an agreed price which usually reflects the market value of the land, less an allowance for costs incurred in securing the planning permission and possibly also in lieu of a promotion fee that would otherwise have been charged. Options are generally time sensitive and there may be a fee paid to secure the option, as well as to extend it if necessary.
The benefits of this arrangement for the landowner include that of promotion agreements but may also give some certainty in the sale price in advance of permission being achieved. However, this price is generally fixed in advance and may not necessarily therefore be reflective of the market value at the time planning has been obtained, particularly where density changes or if there is a significant time delay.
There are differences between the two and variations on a theme (such as hybrid arrangements) and there are potentially significant issues/costs which need to be understood and managed if you are to mitigate these and achieve the most appropriate and efficient tax outcome.
Professional advice will be required, ideally before entering into arrangements, on
The main tax issues affecting land deals are summarised as follows:
For the landowner:
For developers:
This can be a complicated area as no two arrangements are the same. As the numbers involved are high it is important to seek advice ideally before signing agreements.
Our tax team has years of experience in assisting landowners, promotors and developers in ensuring their tax position is robust.
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