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Making the most of a land sale

Making the most of a land sale

The national housing crisis is pushing up the value of agricultural land. And with the Government promising to provide 300,000 new homes a year, it may inflate even further.

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Houses by a large green area

Privately owned agricultural land is currently worth around £20,000 per hectare on average in the UK. But this can rise to some £2 million per net developable hectare in certain parts of the country once planning permission for housebuilding is granted.  

This is encouraging individuals to gain planning permission for their land assets, and then sell them to housebuilders. 

However, the factors affecting a land sale, the process involved, and the tax implications, can be relatively complicated. 

Key considerations

There are some important factors to assess when selling your land:

  • Selling the back garden 

If you’re thinking of selling land around your home, you’ll need to weigh up the consequences of ‘selling the back garden’. 

How will your quality of life be affected by living next to a building site, and subsequently a housing estate? What might happen to the value of your property? 

With this in mind, would you be better selling a portion of the land further away from your home, rather than the whole asset?

  • Land assemblies 

National housebuilders aren’t generally interested in small parcels of land on which to build a few homes. They’re more likely to want larger areas for entire housing developments.

To meet this need, groups of landowners often pool their assets into what’s called a ‘land assembly’. This can prove more lucrative than selling land individually, as the assembly is more valuable to a housebuilder than separate assets.

  • Time and cost

Getting planning permission and selling your land will take some time and a number of steps are involved (more on which below).  

A simple site may take 18 months to obtain planning and be sold, but others can take several years.  As a general rule, the larger the site, the longer it takes. 

Your first step should be to hire a land agent who with their industry knowledge will pair you up with the most suitable land promoter and negotiate the best deal for you. The promoter will then take you through the process, and liaise with all necessary parties: the council, architects, surveyors, planning officers, and get you a outline planning permission.  

Your land promoter will typically charge around 20% (but this can be less if your land is particularly large) of the eventual sale price which will only be paid along with their planning costs once the land is sold,  

The process

Gaining planning permission and selling your land to a developer is a three-step process:

1. The Local Plan 

Before you can seek planning permission, your land has to form part of the council’s Local Plan – that’s the document describing the area’s housing strategy for the next few years. 

Your land promoter will lobby on your behalf for your land to be included in the Local Plan if it is not already. There may be a wait before this can be achieved, however, as local plans are only updated every few years.

2. The application  

With your land included in the Local Plan, you can now apply for planning permission. 

The first step in the application process is to draw up a housing development scheme for your land. 

Your land promoter will handle this for you, working with technical experts such as surveyors and architects. If you’re part of a land assembly, they’ll also liaise with the other landowners. 

The housing scheme will then be put to public consultation. This is the phase of the application that can throw up unexpected barriers – for example, objections from neighbours or environment protection issues. 

3. Sale 

Once planning permission has been granted, your land agent and land promoter will broker the sale of your land. 

For your land to appeal to a housebuilder and to achieve maximum value, it will need to have a full suite of information prepared and all problems solved by the promoter prior to going to market. 

Tax implications

The tax liability on your sale proceeds – and the inheritance tax (IHT) implications – will depend on the nature of the land you sell, and how you go about selling it. 

Main residence 

The sale of land and buildings that are part of your main, long-term residence qualifies for Principal Private Residence Relief (PPR). 

PPR applies if the property sold is required for the ‘reasonable enjoyment’ of your residence – that’s essentially your home and garden. It exempts you from paying capital gains tax (CGT) at 28%.

Separate land 

Selling land that’s separate to your main residence will incur either income tax at up to 45% or CGT at 20%. CGT reduces to 10% if you qualify for entrepreneur’s relief – for example, if the land is commercially farmed.

Which tax applies depends on your intention when acquiring the land. If it was a long-term investment, or is a longstanding family asset, you’ll pay CGT. Whereas if you bought it to seek planning permission and sell it on, you’ll be liable for income tax.

Land assemblies 

The tax implications of selling your land as part of a land assembly are extremely technical and complex, and require specialist advice.  

In fact, you should seek advice whatever your circumstances – before applying for planning permission and certainly before the land obtains planning and increases in value

 

Please contact Paul Clark if you have any further questions.

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