Farmers planning to develop buildings on their property should consider carrying out redevelopments by 2009 or face paying extra tax, a leading tax advisor has warned.
Farmers selling land or redeveloping buildings could face potentially huge tax bills if Chancellor Gordon Brown goes ahead with plans to introduce a Planning-gains Supplement.
Further consultation into the supplement, which is expected to come into force in 2009, was announced by the Chancellor in his pre-budget report last week.
Increase in value
The supplement would tax the increase in property value once planning permission had been granted, regardless of whether the property is sold.
A proportion of the money would be used to invest in local infrastructure, reducing demands currently placed on developers under Section 106 agreements to provide services to local communities when undertaking large projects.
The Government hopes the tax will allow local authorities to speed up planning decisions and free more land for development.
While the tax would hit farmers hoping to sell land for redevelopment, Carlton Collister, senior tax manager at Grant Thornton, said the supplement would be a major blow for farmers who are planning to redevelop farm buildings for letting.
It has been suggested that the supplement would be in the region of 20% of the difference between a land’s current use value and planning value.
For example, on a courtyard of old farm buildings with a current use value of £40,000 and a value with planning permission of £200,000, this could be in the region of £32,000, which would have to be funded by the farmer if he was developing the complex, rather than selling it..
Finding extra money
“In future, nearly all developments will require a farmer to find extra money. The problem isn’t when the assets are sold, it’s when you are developing the asset and haven’t got the cash to pay the tax.
“If a farmers wants to diversify, my advice is to get on with it because if they wait until 2009 they will face these additional costs.”