In his pre-budget speech on Tuesday the Chancellor announced changes to Capital Gains Tax which could further restrict the supply of Greenfield land into the market. Ralph Crathorne, Head of Development Land & New Homes at Strutt & Parker explains: ‘Most of the Greenfield land supply comes from farmers who typically pay 10% Capital Gains Tax thanks to Business Asset Taper Relief. From next April, both Business Asset Taper Relief and Indexation Allowance will disappear and a farmer will be left paying 18% tax on virtually the entire sale proceeds of development land. In other words, his tax bill will almost double’.

Add to this continuing uncertainty about “roof tax” style Planning Charges and there is a real risk of a slowing down of the supply of Greenfield land. Crathorne says: ‘Strutt & Parker is bringing forward about 12,000 acres of this sort of land through the planning system. History shows that land owners are sensitive to hikes in taxation. On the one hand we have the Prime Minister saying he wants to speed up the release of residential development land. On the other hand his Chancellor has just put the brakes on”.

Unlike many other sectors of the property market the supply and demand issues surrounding residential development land have underpinned prices and despite concerns about house prices the land market looks firm. The prominence of RSL’s (registered social landlords) in the market place is one of the factors currently squeezing developers’ profits in some cases single figures.

There are however some opportunities for developers thrown up by the tax changes. Crathorne explains ‘An unconditional sale before April 2008 will still be taxed at the old rate of 10% for most landowners. However the tax paid on an overage arrangement (an additional sum dependant on planning outcome or gross development value realised) will drop in most cases from 40% to 18%’. Crathorne says ‘A good development land broker will be able to guide a developer into structuring his bid in a way that minimises the burden of the Chancellors tax proposals on a vendor.’