Preparing Your Land For Sale Or Development: Tax, Trust And Succession Considerations

• Published date: 27 September 2023
• Subject Matter: Real Estate and Construction, Tax, Family and Matrimonial, Landlord & Tenant - Leases, Inheritance Tax, Wills/ Intestacy/ Estate Planning
• Law Firm: Michelmores
• Author: Ms Charlotte Coombs

In order to maximise the chances of a successful planning application and subsequent sale, it is important for landowners to consider the best structure for owning the land and plan for the succession of their estate to minimise tax liabilities ahead of making the planning application. Obtaining tax and succession planning advice in good time is essential as it is easy to miss out on tax reliefs if tax and succession planning are not considered at a very early stage.

Ownership and occupation

The sooner title and legal ownership is reviewed the better. It is important to identify the underlying beneficial interests in the land so the beneficiaries can obtain advice and structure their ownership to manage the tax implications. Where trusts, partnerships and companies are involved, there can often be misconceptions about who owns what and in what capacity. It is often the case that the legal documentation does not match the purported position.

A developer will require the land to be sold with vacant possession once planning is secured. Therefore, in addition to ownership, occupation of the land must be reviewed to ensure any tenancies or licences can be brought to an end and the land vacated when required. If the land is not occupied, consider whether it would be beneficial from a husbandry and tax perspective to be temporarily occupied (see tax considerations below).

Taxation

The value of the land for Inheritance Tax (IHT) and Capital Gains Tax (CGT) purposes will usually increase on the granting of planning permission. It is therefore important to consider taking legal and tax advice early as this provides more options for mitigating any tax due at a later date; this may not be possible if left too late.

On the disposal of the land, CGT will generally be payable at a rate of 20% on the value of all net gains in land value. It is possible to reduce the CGT due by taking advantage of Business Asset Disposal Relief (formally Entrepreneurs' Relief) or deferring the CGT using Roll Over Relief, but using these reliefs requires planning and should be considered alongside long-term aims.

IHT is not always an immediately obvious priority, but it is important to think about the IHT position in the event that one of the beneficial owners die or following the gift of the land. Land is an asset that may be protected from IHT through reliefs such as Agricultural Relief (AR) and Business Relief (BR). Without any reliefs the full value may be subject to IHT at 40%...