Developers are increasingly seeking to promote sites for residential development. As a farmer or a landowner it may now be a good time to consider if you can take advantage of this but there are a number of issues to consider:
Developers usually want to secure land before they apply for planning permission. The most common types of agreement include options, promotion agreements and joint venture agreements. Each agreement has its own distinct advantage and disadvantage and needs careful consideration to ensure that it achieves what the parties intend without any unpleasant consequences should the agreement come to fruition.
Before committing, you should check the title to your land to see if there are any restrictive covenants which could prevent development. The title may also confirm if any third party consents (for instance the bank) are needed to the agreement. Landowners would be wise to make contact with any third parties early to obtain any consents necessary.
Landowners may want to consider imposing an overage or “claw-back” provision on land sales that enables the original landowner to share in any increase in value of the land arising from the grant of planning permission for development. This could be a consideration even on quite small acreages, especially those close to established settlements. This may be particularly relevant to landowners who are currently selling or considering selling their property in an area that has been earmarked for development. Landowners would be advised to check with their Local Authority for any possible future development or planning changes in their area.
A sale of commercial or bare land will normally attract capital gains tax at a rate of 20%. A rate of 28% will apply on the sale of residential land, although an exemption is available in respect of land forming part of the garden or grounds of the landowner’s principal residence.
Entrepreneurs’ relief, which results in a 10% rate of tax, is not normally available on the sale of land for development but advice should be taken on its availability and to explore whether steps can be taken to qualify.
In certain circumstances, particularly where the landowner agrees to share in the profits on the future sale of the developed land, an income tax charge can arise at the rate of 40% and 45%. Advice should be taken to mitigate the risk of having to pay these higher rates of tax.
It would wise to speak to your solicitor at an early stage to discuss the provisions and suitability of imposing an overage or claw-back provision in the contract for sale and essential to seek tax advice before committing to a sale.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.