George Bull

Written by: George Bull

George Bull

Senior Tax Partner

Using tax to kick start housing development

  • October 2017
  • 3 minutes

In last week’s Tax Brief, I reflected on the plethora of new taxes proposed by recent Chancellors of the Exchequer. That’s prompted several correspondents to observe that we really don’t need any more taxes in the UK! The BPF in particular is currently campaigning for a reduction in the number and complexity of property taxes.

However, I wonder whether the reintroduction of an old tax might come to the aid of communities secretary Sajiv Javid, and others, concerned to find an urgent solution to the UK’s housing problem.

I have in mind here the oft-quoted statistic that in England and Wales planning approvals have already been granted for a massive 450,000 houses, but developers have yet to start work on those sites. Can tax help to get building work started on these sites?

While not generally thought of as an obvious measure to emanate from the current party in power, in December 1973 the Conservative government proposed the introduction of the development land tax. It came into force under a Labour government in August 1976 and was repealed in 1985.

To be fair, development land tax was an unlovely and unloved thing. It was phased in from August 1976. Subject to exempt amount of £10,000, the first £150,000 of development value realised when development commenced was taxed at 662/3 per cent. Any development value realised in excess of £160,000 was to be taxed at 80 per cent.

These eye-watering tax rates resulted in a rush to commence development projects before the tax began to bite. This is well illustrated in this graph from the 2015 NHBC publication ‘Homes Through The Decades’:


 


It can be seen from this that, almost as soon as the intention to legislate was announced, the steep decline in housing construction was reversed. From 1974 to 1977, there was a notable upswing in new development projects. Once the shock effect of the tax had worn off, tax avoidance, other economic problems and the administrative nightmare which surrounded this tax meant that its influence on developers’ behaviour declined.

The key thing to note, of course, is that from 1974 to 1977 developers and landowners were under the firm impression that the tax was there to stay and planned their developments accordingly. It would therefore be no good at all if the current government proposed a development land tax which was time-limited. But perhaps the carrot of new borrowing and public money to support housing development might usefully be supplemented by the stick of a long-term ‘Son of Development Land Tax’ to boost housebuilding in the UK.

For more information please comment below or get in touch with George Bull.

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