Development Land - Capital Gains Tax Treatment

Introduction

The capital gains tax treatment applying to disposals of development land is contained in Section 69 Finance Bill 2000. That section gives effect to the Budget 2000 announcement that a 20% rate of capital gains tax should apply to the disposal of non-residential development land. A 20% rate already applies to disposals of certain residential development land. The 20% rate is also now to apply to those categories of residential development land which were specifically excluded up to now.

Position from 1 December 1999

There will now be a general 20% capital gains tax rate for all disposals of development land from 1 December 1999 to 5 April 2002. A rate of 60% takes effect for disposals to which that rate will apply as and from 6 April 2002. The new rules come into force as respects disposals made on or after 1 December 1999.

Section 69 Finance Bill 2000 amends Section 649A Taxes Consolidation Act 1997 to provide for the new rules from 1 December 1999 and it also preserves the pre 1 December 1999 rules. Accordingly, the new subsection (1) of Section 649A sets out the three rates of capital gains tax on disposals of development land which apply from 3 December 1997 through to 6 April 2002 and thereafter. The new subsection (2) of Section 649A sets out the different categories of residential development land which attracted the 20% rate in the period from 3 December 1997 to the introduction of the general 20% rate from 1 December 1999.

Period up to 30 November 1999

The reduced rate of capital gains tax applies to certain disposals of development land in the period to 30 November 1999. Three categories of disposal of development land qualify for the 20% rate of CGT. The legislative basis for the reduced rate is contained in Section 649A (2) and (3) Taxes Consolidation Act 1997. The three categories are:

• Land required for the purposes of the Housing Acts 1996 to 1998 disposed of to:
  1. A housing authority (as defined) in the period 23 April, 1998 to 30 November 1999
  2. The National Building Agency Limited or voluntary housing bodies in the period 10 March 1999 to 30 November 1999.
• Land the whole of which has, at the time of disposal, unexpired planning permission for residential development disposed of in the period 23 April 1998 to 30 November 1999.
• Land the whole of which is, at the time of disposal, zoned for use solely or primarily for residential purposes in accordance with a development objective set out in the development plan of the relevant planning authority disposed of in the period 10 March 1999 to 30 November 1999.

Disposals of development land, other than the 3 categories above, in the period to 30 November 1999 attracted the higher CGT rate of 40%.

Housing Authorities etc.
The first category is straightforward. The 20% rate applies where a certificate is given by either a housing authority or the National Building Agency Ltd that the land concerned is land needed for the purposes of the Housing Acts 1966 to 1998.

Planning Permission for Residential Development
The second category requires extant planning permission for residential development for the whole of the land at the time of the disposal.

“residential development” is defined in Section 649A(3) as including any development which is ancillary to the development and which is necessary for the proper planning and development of the area in question.

Zoning for Residential Purposes
The third category attracting the 20% rate of capital gains tax is land the whole of which at the time of its disposal is zoned solely or primarily for residential purposes.

“residential purposes” is not defined in the legislation. Consequently, it must take its normal meaning. Any purpose which can be regarded as having as its objective the provision of a building which is capable of being used as a residence would on this basis qualify.

The phrase “solely or primarily” must be read in the context of “for use solely or primarily for residential purposes” .... “in accordance with a development objective (as indicated in the development plan of the planning authority concerned)”.

The approach taken is that unless the development objective in question was unambiguously “solely or primarily for residential purposes. the legislation precluded the 20% rate of CGT applying.