What is the ‘grey belt’, and what are the potential tax liabilities?

The Labour Government’s ‘grey belt’ redesignation of some parts of the existing green belt land in England raises some interesting tax planning questions around the taxation of grey belt land development and disposals. This blog considers some potential issues around grey belt taxation that owners and developers must consider.

What is grey belt land?

‘Grey belt land’ is a concept used by the Labour Government to erode the existing protections afforded to green belt land in order to promote urban development on parts of the green belt in the name of economic growth. This change is achieved by changing ministerial guidance to local planning authorities, recharacterizing some green belt land as of “poor quality” and “ugly” and, therefore, ok to build on. 

The policy is intended to release what is said to be poorer-quality green belt land, such as wastelands and former car parks, to facilitate the development of more homes. In doing so, the policy overrides the purpose of green belt land, whether “ugly” or not, which is to control urban sprawl around cities and preserve strategic gaps between urban development. The change of name from “green belt” to “grey belt” is rather Orwellian and is intended to dilute the appearance of and disguise what is happening. Be that as it may, what are the grey belt tax implications?

Why is grey belt land being introduced?

To encourage the building of more homes, including affordable homes, on green belt land.

What are the 5 Golden Rules?

The Labour Government have announced five golden rules for the development of any scheme built on green belt land:-

  1. Brownfield development must be prioritised ahead of green belt;
  2. Grey belt development will come next;
  3. Green belt development must include at least 50% affordable homes;
  4. New public services and infrastructure must be introduced when building on the green belt;
  5. Green belt development must be ‘accompanied by a plan to improve existing green spaces and create new ones accessible to local people’.

It will be interesting to see how developers and planning officers deal with these rules when the economics of particular developments are such that one or more of these golden rules means that the planned development is either unprofitable or only marginally profitable at best.

What is the purpose of Green Belt Land?

The purpose of the green belt is to prevent urban sprawl, which is the tendency of towns and cities to expand outwards into the surrounding countryside and this eventually results in towns and cities merging in one long development and the strategic green space between them being lost to the detriment of the quality of life, nature and bio-diversity.

If you have greenbelt land that is recategorised as grey belt, what are the likely tax liabilities when selling the land?

If you are a property developer, then you will be treated as carrying on a trade and will be liable to income tax and national Insurance or corporation tax if you operate through a company on your trading profit. The trading profit is computed after a deduction for all expenses incurred wholly and exclusively in the course of the trade, including the cost of the land.  On the other hand, a property investor is taxed on any gain and pays capital gains tax or corporation tax on chargeable gains.

Most existing owners of green belt land are likely to be regarded as holding such land as an investment for tax purposes, given that development of such land has not been possible until now. A future sale of such land for development under the Government’s new grey belt rules is therefore likely to be taxed as a chargeable gain arising from your investment.

However, if you held the land as an investment but in connection with the redesignation of your land as grey belt, your intention changes to becoming a developer, the property would be recharacterized for tax purposes as no longer a fixed investment asset but as trading stock.

For capital gains tax purposes, you will then be treated as having disposed of the property to yourself for market value and taxed accordingly on that deemed disposal, even though you have not received any cash out of which to fund the tax. However, there is an election for tax purposes that you can make to ‘hold-over’ taxing that gain until the property is sold on to a third party in your capacity as a developer, although that will mean all the gain is eventually taxed as income.

How much is capital gains tax on a land sale?

Currently, CGT on sales of land as an investor and not as a trader is charged at 10% and 20% for non-residential land and 18% and 24% for residential land, with an annual exemption of £3,000. 

How long will it take to re-designate land as a grey belt?

The rules protecting the green belt can be changed through a written ministerial statement instructing planning officers how they should interpret the “very special circumstances” in which building on the green belt is allowed under the current rules. Under the previous Tory government, ministers had given guidance to local planning officers that the value of new homes “is unlikely to outweigh harm to the green belt”. The Labour Government is likely to introduce the grey belt by a change to this guidance in order to encourage local planning authorities to grant more approvals for the development of green (now grey) belt land.


The taxation of grey belt land is likely to follow the existing tax rules for property investment and property development and taxpayers should ensure that they are familiar with those rules and the need to structure their development arrangements carefully whether via a husband and wife partnership, a company or as a sole trader. Many tax factors need to be considered, including VAT, the Construction Industry Scheme (“CIS”), SDLT and ATED, whether to make tax elections and the Transactions in UK Land anti-avoidance rules which can turn a capital gain into an income profit when land has been acquired with the intention of realising a profit or gain on its disposal.

For tax advice of grey and green belt land and land development, contact Patrick Cannon.


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For professional and insurance reasons Patrick is unable to offer any advice until he has been formally instructed.