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New tax for struggling property developers

Property developers in the region suffering with the market downturn are likely to feel a further squeeze in future when the Community Infrastructure Levy is implemented, say advisers in the East Anglian offices of PKF Accountants & business advisers.

It follows the Government's drive to embark on one of the biggest house-building programmes in decades to meet the needs of our ageing, growing population.

The Community Infrastructure Levy (CIL) has been drafted as a tax on these developers to give local authorities extra resources to invest in public service facilities and social infrastructure to support these new communities.

Now the Government has announced the CIL will be implemented soon after spring 2009, but Peter Harrup, tax partner at PKF, which has offices in Ipswich, Norwich and Great Yarmouth, says this could be the final nail in the coffin for many developers.

He says: "The CIL is effectively an upfront tax that developers will have to pay on the increased value of land resulting from obtaining planning permission. As the tax will be payable at the time the development begins, it will further strain the cash flow of hard-pressed developers."

Richard Neall, Chief Executive of Ipswich-based SEH Group, which includes subsidiaries that specialise in groundworks and civil engineering particularly for the housing market, said: "Given current market conditions, this is yet another burden on our hard-pressed industry. At the very least, we would want it delayed until the market shows some sign of recovery."

Already some developers are resorting to holding on to their housing stocks in favour of renting them until the market recovers, however, this will mean added tax bills.

"They could be forced to repay the VAT they have claimed back because of the differing VAT treatment in selling and letting properties," Mr Harrup adds.

He continues: "The Government has stated it wants CIL charges to be set at levels that would not prejudice the viability of developments. For many developments, this would mean setting the CIL at nil. Property developers will be hoping that the CIL proposals are delayed until the property market decline is halted."

Article by BDO LLP

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