DEVELOPMENT LAND TAX BILL (Hansard, 21 July 1976)

§ Lord JACQUES

My Lords, I beg to move that this Bill be now read a second time. The Government's land policy was laid down in the White Paper entitled Land (Cmnd. 5730) which was published on the 12th September 1974. In brief the Government's policy was stated as being that all land needed for development should be acquired by local authorities at current use value. It was, however, realised that there would be a transitional period and that during the transitional period there would have to be three objectives. The first objective is to maintain the flow of land coming forward for development; the second objective is to ensure that an appropriate proportion of the development value is returned to the community, and the third objective is to reduce the effective cost of land to local authorities.

The purpose of this Bill is to achieve those objectives. The tax for which it provides replaces the provisions for taxing development gains which were included in the 1974 Finance Act. The intended appointed day for this Bill is 1st August 1976. The tax will be charged on realised development value. When there is a disposal the gross amount for tax purposes will be the net proceeds. Disposal will include a part disposal, that is to say, a sale of part of the land or interest in the land, and also the granting of a lease.

When there is a start on material development it will be deemed to be a disposal, but in that case the gross amount for tax purposes will be the market value. Therefore, for the purposes of this tax we start with the gross amount equal to the net proceeds, or the market value, as the case may be. From that gross amount there is deducted a base value, and the Bill provides that it shall be the highest of three base values: A, B or C. Base A is the cost of acquisition plus any increase in the current value during the period of ownership. Base B is the current use value at the date of disposal, plus 10 per cent. Base C is the cost of acquisition 859 plus 10 per cent., and the base value that is chosen is the highest of any of those three.

For a limited period there will be a special addition to Base A to allow for the possibility that the transactions involved in the purchase of the interest in the land may have been financed at very high rates of interest. In the case of land acquired on or before 12th September 1974, the additional allowance is 15 per cent. per annum, with a maximum of 60 per cent. Where land is acquired after 12th September 1974 but before 1st May 1977, there will be an allowance of 10 per cent. per annum, with a maximum of 40 per cent. So that in order to calculate the development value, we have to take the net proceeds or the market value, as the case may be, and deduct the highest of these three base values. The first £10,000 of development value in any one financial year for any one taxpayer is exempt from tax. Up to 31st March 1979, the next £150,000 is taxed at 66⅔ per cent.; only the balance is taxed at 80 per cent.

There are a number of exemptions or quasi-exemptions. First, local authorities and similar bodies are exempt; for example, among the similar bodies are the Scottish and Welsh Agencies. Secondly, there is a limited exemption for the residential owner-occupier. In the original Bill the limit was one-quarter of an acre, but in the Bill now before the House the limit is one acre. It is also provided that this exemption shall apply when the occupier is not the owner but a dependent relative of the owner. In the case of an industrialist who develops for his own use, provided it is an industrial use, the tax is deferred interest free until he disposes of the land which has been developed, or ceases to use it for his own industrial purposes. Statutory under-takers have the same right of deferment, as also have certain housing associations.

In the case of charities, land held by them on 12th September 1974 is totally exempt. if the land is acquired after 12th September 1974 and is developed for the charity's own charitable purposes, then it can be deferred interest free, in much the same way as the tax of the industrialist. Traders in land will have had some in stock on 12th September 1974, and in certain cases it will have had 860 planning approval. In so far as the development value arises from the planning approval already obtained, it will be exempt.

There is, of course, an interaction between this tax and some other taxes. Capital gains, for the purposes of the capital gains tax, or profit, for the purposes of income tax or corporation tax, will be reduced by the slice of development value which is, or will be, subject to development land tax. Where there is a gift or a legacy which has attracted capital gains tax, capital transfer tax or estate duty and the property is subsequently sold, appropriate relief for those taxes already paid will be made in calculating the development land tax. Local authorities will acquire land net of tax. Wherever possible, the amount of the deduction will be the actual or approximate liability already agreed between the vendor and the Inland Revenue. In all other cases, there will be an overriding limit to the deduction, which cannot exceed 50 per cent. of the gross value. In all cases there will be a final adjustment and the balance, whether payable by the vendor or to him, will carry appropriate interest. That, I think is a fair summary of the tax.

In conclusion, I should like to say that since the first White Paper was issued on 12th September 1974 there have been the most thorough consultations, especially with those affected by the tax, and in February 1975 the Revenue issued a statement giving the main features of the tax in substantial detail. In August 1975 a further White Paper was issued entitled Development Land Tax (Cmnd. 6195) in which there were draft clauses and Schedules and explanatory notes. As a result of these publications and the consultations which followed them, there were many improvements made to the Bill and when it was published an explanatory booklet was issued as a partner to it. There were very constructive debates in the other place in both the Committee and Report stages and, in consequence, many Amendments were made, most of which were either improvements to the Bill or to meet some of the criticisms. The question of the taxation of development value is a problem which has been with us for a long time, and we believe that this Bill sets out a sound method of dealing with this problem. It is for that reason that I have pleasure in 861 commending the Bill to the House. My Lords, I beg to move.