For many landowners looking to obtain planning permission and sell their land for development, tax implications are a major concern. One option is to enter into a land pooling trust, but this can be a daunting prospect and specialist advice - on both the law and tax - is essential.
Landowners who group land together, outside of a trust, can find themselves paying significantly more tax as there can be both Capital Gains Tax (CGT) and Income Tax liability across the landowner group. In the event of a sale of part of the site in these circumstances, the person whose land is sold must pay CGT, calculated according to the value increase of the land sold. Once the sale has been completed, a share of the profits is passed to the other landowners, and this is treated as income and liable to income tax. This double taxation is an issue that all landowners want to avoid.
Land pooling in its most basic form involves a number of independent landowners putting their land together to create one entity made up of individual land packets. If development is on the cards, this approach can be more tax efficient, enabling everyone involved in the land pool to profit from a sale, even if it isn’t necessarily their own piece of land that has been sold.
To ensure they get the most value from a land sale as possible, landowners often enter into a land pooling trust. By setting up a trust, the pieces of land get put into one pot, meaning the members of the trust sell as a collective, with every trustee having an interest in all of the land. The land is treated as a single package from the day the trust starts, with a document created to settle how any proceeds are distributed, how costs are shared, and how the land is to be maintained.
Choosing to enter into a land pooling trust can be a wise decision for those happy to work with their fellow landowners. It can make land more attractive to developers, due to there being only one seller group to deal with.