Land Transaction Tax compulsory purchase relief and planning obligations relief: technical guidance

(paragraph 1 Schedule 21)

Relief may be claimed where land is purchased following the making of a compulsory purchase order for the purpose of facilitating development. The person claiming relief can only be a person who is able to, and has made, a compulsory purchase order in relation to the main subject matter of the land transaction.

A typical scenario is where a local authority is supporting a major development which requires the purchase of properties by the developer. The developer will usually attempt to acquire the properties and land required by negotiation with the landowners, but sometimes agreement cannot be reached.

The developer will then agree with the local authority for them to make a compulsory purchase order.

Once a compulsory purchase order is obtained, the developer may continue with negotiations but should these negotiations fail, the local authority may purchase the land by way of the compulsory purchase order and subsequently sell the land to the developer.

As there are 2 acquisitions, one from the landowner to the local authority and one from the local authority to the developer, there would normally be 2 LTT chargeable transactions.

The rules give the local authority relief from LTT on the first purchase, provided the conditions for relief are met. Those conditions are provided by the definition of ‘a compulsory purchase facilitating development’.

Such a compulsory purchase occurs where the purchase of a chargeable interest is by way of a compulsory purchase order made by the buyer (for example a local authority) to facilitate development by a third party. The relief is only available where a party other than a local authority develops the land. If the developer is the local authority, there is no relief.

In order to obtain relief, the buyer must be the person who made the compulsory purchase order. This would usually be the local planning authority.

Any subsequent transfer of the chargeable interest to the third party is subject to LTT in the normal way.

As long as the other conditions are fulfilled, it does not matter if the purchase is part of an agreement between the seller and the third party.

Should the landowner, as seller, agree to sell the land and there is agreement of a price with the third party (developer), as long as the subsequent sale, to the maker of the compulsory purchase order, is the subject of a compulsory purchase order, the fact that there is already an agreement as to terms, is not a bar to the local authority obtaining the relief on its land transaction as buyer.

In the event that the land is sold directly from the original landowner to the third party no relief can be claimed as the local authority is not the buyer.

The purchase must be made to facilitate development of the land by a third party (that is, someone other than the person making the compulsory purchase order). The term development has the same meaning as in Section 55 of the Town and Country Planning Act 1990.

(paragraph 2 Schedule 21)

Where a land transaction is undertaken to comply with a planning obligation or a modification of a planning obligation, the buyer (a public body as defined) may claim relief from LTT on that transaction, if certain conditions are fulfilled.

This relief is designed to relieve a developer from a potential double charge where they have entered into planning obligations in the course of a development.

It is common for a planning authority to require the developer to enter into planning obligations (for example, to build a new road or school or to make a financial contribution) as a condition of the granting of planning permission for a development.

Where the obligations require extra building works, as opposed to a financial contribution, the developer will not usually want to retain that facility once it is finished. They will usually want to transfer it to a public authority to run from then on (for example, if a road is built the developer may transfer it to the highways department of a county council).

If the developer acquires the land from its original owner and when the building is completed, transfers it on to a public body, the developer may be subject to an effective ‘double charge’.

This ‘double charge’ arises as although the public body will be liable for any LTT on the latter transaction, it will usually seek reimbursement from the developer, as part of the arrangements for the granting of planning permission.

By claiming the relief, the public body is relieved from the LTT charge on the actual land transaction in which it acquires the land, buildings or facility, so effectively relieving the developer from a ‘double charge’.

All 3 of the following conditions must be fulfilled in order for the transfer from the developer to the public body to be eligible for relief.

Enforceable against seller

The first condition is that the planning obligation must be enforceable (through the courts or by another mechanism) against the vendor.

This means that there must be a planning obligation in place against the vendor before the transaction is effected. Additionally that planning obligation must be capable of being enforced, whether through the courts or by other means. It does not matter that no action has been taken to enforce the planning order it must though have been made and therefore be capable of being enforced.

Therefore, transfers from the developer to the public body without this condition in the planning permission are not transfers in order to comply with an obligation, as there is nothing to with which to comply and relief cannot therefore be claimed.

Purchaser is a public body

The second condition is that the purchaser is a public body.

5 year time limit

The final condition is that the transaction takes place within 5 years of the date the planning obligation was entered into or modified. It is the latest of these dates from which the time period runs.

For example, if the planning obligation was entered into on 1 March 2020 and subsequently modified on 20 September 2022 and modified again on 25 June 2023 and then became the subject of a compulsory purchase order, the land transaction transferring to the property from the developer to the public body must take place by 24 June 2028 at the latest. This is the last date which is within the period of five years commencing with the date of the last modification (that is within 5 years from 25 June 2023).

Planning obligation and modification of a planning obligation

A planning obligation is defined as one within the meaning of Section 106 of the Town and Country Planning Act 1990 which is entered into in accordance with subsection 9 of that section. 

A modification of planning obligation is defined as a modification mentioned in Section 106A(1) of the Town and Country Planning Act 1990.

Public Bodies

The following is a list of the public bodies for the purposes of this relief:

• a county or county borough council constituted under section 21 of the Local Government Act 1972
• a Special Health Authority established under section 22 of the National Health Service (Wales) Act 2006
• a Local Health Board established under section 11 of the National Health Service (Wales) Act 2006
• a National Health Service Trust established under section 18 of the National Health Service (Wales) Act 2006
• A person specified as a public body for this relief by the Welsh Ministers in regulations.