Analysing the difficulties around the sale of developmental land

Where land is sold for development, the sums can be eye watering and thinking about the tax consequences at the outset can be beneficial.

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Penelope Lang
Published: 31 Jul 2019 Updated: 13 Jun 2022

The sale of land for development gives rise to a capital gain for most UK landowners. Following the Finance Act 2016, income tax has become more of an issue especially where the landowner is involved in the development process.

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Promotion Agreements

A promotion agreement is an agreement between the land owner and the promoter. The promoter generally undertakes to obtain planning permission and to find a purchaser. The promoter will charge a fee in the region of 20% of the sale proceeds of the land. When the promoter finds a buyer the gain on the land is generally liable to capital gains tax (CGT).

The sale of land is usually exempt for VAT i.e. no VAT is payable on the sale proceeds but equally no VAT is recoverable on any costs associated with the sale. However, with promotion agreements, the promoter is providing a service and so will have to charge VAT on the service fee. The landowner should seriously consider opting to tax the land. As a result, the sale proceeds will become liable to VAT but VAT is then recoverable on the costs associated with the sale, including the promoter’s fee and legal costs.

Option Agreements

The main alternative to promotion agreements are option agreements. An option agreement gives the developer the right to buy the land in question at an agreed price, normally based on a percentage of market value, after planning permission has been obtained. The option holder will pay an option fee to acquire this option. Under an option agreement the amount to be taxed is the value of the option monies received plus the sales proceeds paid by the developer once planning has been obtained.

Easing the complexities

There are often overage clauses to take into consideration, and on larger sites land may be “pooled”. Both scenarios give rise to their own legal and taxation issues. Selling land for development can be lucrative, but the complexities mean that experienced tax and legal advice needs to be sought from the outset.


By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.