Now You See It, Now You Don’t – Planning Gain Supplement Returns?

Now You See It, Now You Don’t – Planning Gain Supplement Returns?
For a couple of years, the Treasury has been playing cat and mouse with property developers over a new tax, Planning Gain Supplement.


There have been various consultation documents setting out the form of this new tax. Essentially, it was designed as a replacement for the “Section 106” bribes that local planning authorities are able to impose on developers – “you want to build a supermarket here? Well, you can, but we want a new swimming pool and a leisure centre as well, built at your expense for us to run”.


The PGS was going to centralise the bribery process so that the developer had to pay a tax on the increase in value of his land as a result of obtaining planning permission. The tax was to be payable at the time the development work started – it was to be a condition of the planning permission that the payment was made.


Local authorities were less than keen on this innovation because, of course, it meant that the cash went into the Treasury’s coffers, rather than the local authority’s. The theory was that the Treasury would then pay the cash out to the local authorities (if they hadn’t lent it to a failing bank first), but that was seen as much less satisfying than making the developer jump through the “Section 106” hoops.


When you looked at the detail of the proposals, it was clear that like many of our erstwhile Chancellor’s bright ideas, it was ludicrously complex, uncertain in its effect and probably impossible to administer. We heard whispers that even Gordon realised it was a tax too far and wanted to drop it - or perhaps he thought he would never get it past Parliament.


In his Pre-Budget Report, the new Chancellor announced that PGS was to be scrapped. Apparently, the responses to the consultation documents had persuaded his controller that the tax was unworkable. Instead, he announced that local authorities would retain the power to impose planning conditions and be able to collect local planning taxes.


The property industry breathed a sigh of relief but they had not seen the legislation then. When the Planning Bill was published, it included details of the “Community Infrastructure Levy”.


This empowers local authorities to impose a tax charge on the developer of a specific site in their jurisdiction. The Bill (Clause 163) also empowers the “Communities Secretary” to make regulations empowering any planning authority to impose CIL – any planning authority, including the Secretary of State.


The power to impose CIL can therefore be extended to central government by making regulations – so much easier and simpler than all that annoying debating in Parliament, where MPs disagree and ask awkward questions.


This is not a trivial procedural point. The ability to impose taxes by regulation rather than by statute should be very tightly limited – a good example of an appropriate use of this mechanism is the PAYE regulations where the legislation sets out the basic concept (“If you employ someone, you must deduct tax and NIC from their wages”) and leaves the fiddly details to be sorted out by regulation. The PAYE regulations deal with how to collect the tax, not with how much tax is due, which is properly the responsibility of Parliament.


The 2007 Finance Act included another example of the incorrect use of regulations – it allowed HM Revenue and Customs to decide whether a company was “listed” or “unlisted” for tax purposes. The distinction is a very important one for various tax purposes, most notably for the fact that shares in an “unlisted trading company” are “business property” for inheritance tax purposes, and thus are effectively exempt from IHT. Currently, shares quoted on the AIM are “unlisted” for tax purposes, but since FA 2007, HMRC could change that without Parliament having a say.


We should not be complacent about these changes. It is a fundamental tenet of a democracy that taxes are imposed by Parliament, by those who have to answer to their electorate. The job of the bureaucrats is to collect the taxes from those who owe them, not to decide who shall pay what tax.