Land tax will target housebuilders' profits

Paul Mobbs mobbsey at
Tue Aug 30 21:34:48 BST 2005

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Land tax will target housebuilders' profits

By Andrew Grice, Political Editor
The Independent, 30 August 2005 

The Government is to bring in a "housing land tax" to share some of the huge 
windfall gains that are made when land is sold off for housebuilding.

The move, which may raise hundreds of millions of pounds, could be announced 
by Gordon Brown in his pre-Budget report in November. A consultation exercise 
would follow before a final decision on the level of the new tax is taken. 
Individuals as well as developers could be hit by the tax, which would be 
paid at the moment when planning permission is granted for housing. In an 
attempt to stave off criticism that the plan would encourage building in the 
green belt, there could be a lower rate of tax for land in brownfield sites.

Although the proposal could be controversial, the money raised would not be 
retained by the Treasury but would be ploughed back into plans to revive 
local communities by providing housing and improving services. Part of the 
receipts could be earmarked for local authorities.

Planning approval for homes to be built can vastly increase the value of land. 
A study for the Government found that the value of farmland in the South-east 
would increase from £9,122 to £2.7m per hectare when it could be used for 
housing. In the North-east, the value would rise from £7,534 to £1.2m and in 
the east Midlands from £7,450 to £1.8m.

The idea of imposing a tax on a landowner when planning permission is granted 
was first mooted by Kate Barker, a member of the Bank of England's Monetary 
Policy Committee, in a review of Britain's housing needs in March last year. 
It has now won the support of Mr Brown and John Prescott, the Deputy Prime 
Minister, who is responsible for housing and planning.

While ministers would normally be wary of imposing a new, highly visible tax, 
they believe that the proposal can be justified on the grounds that part of 
the big windfalls now being enjoyed by the private sector should be used to 
finance the public services that new housing developments will need. 

 Land is already subject to capital gains tax. Ms Barker argued in her report 
that the forms of development gains tax that had been tried in the past had 
failed because they distorted behaviour and raised less money than expected. 
Large landowners and speculators managed to avoid the tax but smaller 
landowners were hit.

She said the proposed tax would have to be accompanied by transitional 
measures to soften the blow for developers, with land sales contracts drawn 
up before it was introduced and for those holding large amounts of land for 
which planning permission has not yet been given.

But the plan will be opposed by the Tories, who warn that it would provide an 
incentive for developers to build expensive executive homes in the green 

Yesterday, the Tories accused Mr Prescott of breaking a pledge that a 
revaluation of business rates would not raise any extra revenue after figures 
showed companies were paying an extra £1.2bn a year in England.

Caroline Spelman, the shadow Local Government Secretary, said: " Business 
rates, like council tax, are being used as a stealth tax.

"Thanks to John Prescott's rigged rates revaluation, local firms are being 
taxed to the hilt, taking the average bill to £10,000 for the first time." 
She warned that householders would be hit when a revaluation of council tax 
took place.

- -- 

"We are not for names, nor men, nor titles of Government, 
nor are we for this party nor against the other but we are 
for justice and mercy and truth and peace and true freedom, 
that these may be exalted in our nation, and that goodness, 
righteousness, meekness, temperance, peace and unity with 
God, and with one another, that these things may abound."
(Edward Burroughs, 1659 - from 'Quaker Faith and Practice')

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