Land With Planning Gain UK - How to Identify and Assess Development Opportunities

Explore land with planning gain UK, including planning permission, development value, land value uplift, hope value, planning obligations and how investors can assess development land before buying.

Land can become substantially more valuable when its permitted or potential use changes.

A parcel of agricultural land, commercial land or underused urban land may have one value in its existing use but a considerably higher value if it can be developed for housing, commercial space or another permitted use.

This increase is commonly described as planning gain, planning uplift or development value.

HM Revenue and Customs recognises that land can increase significantly in value when it acquires development value, including following inclusion in a local authority development plan or the granting of planning permission.

For investors and landowners, however, the important question is not simply whether planning could increase the value of land. The real question is whether the potential uplift remains attractive after development costs, planning obligations, finance and other risks have been considered.

What Is Land With Planning Gain?

Land with planning gain is land where a planning decision or development opportunity creates additional value compared with the property's existing use.

For example, agricultural land might have a relatively low value in its existing use.

If planning permission is subsequently granted for residential development, the land may become significantly more valuable because it can now be used for a higher-value purpose.

The increase between the existing-use value and the value associated with the new development use is commonly referred to as land value uplift.

Government appraisal guidance defines land value uplift as the change in land value when land moves from its previous use to a new, more productive use, allowing for the costs involved in making that change.

Planning Gain vs Planning Uplift

The terms are sometimes used interchangeably, but they are not identical.

Planning uplift generally refers to the increase in land value resulting from a change in development potential or permitted use.

Planning gain can also refer more broadly to the benefits or contributions associated with development, including planning obligations and infrastructure contributions.

For an investor buying development land, planning uplift is usually the more useful concept when analysing the financial difference between the existing property and its potential future use.

How Planning Permission Can Increase Land Value

Planning permission can transform the development prospects of a site.

Potential examples include:

• Agricultural land receiving residential permission

• Commercial land being approved for housing

• An office site being redeveloped

• A brownfield site being allocated for development

• A low-density site receiving permission for additional homes

• A warehouse site being redeveloped for mixed use

• A car park becoming a residential development site

• Land receiving permission for a larger development than its previous use allowed

Planning permission is required for development that falls within the statutory definition of development, although certain works and uses can benefit from permitted development rights or fall outside the definition.

This means investors need to establish the precise planning position rather than relying on a property's marketing description.

Types of Land That May Have Planning Gain Potential

Not all development land looks the same.

Agricultural Land

Farmland can attract significant attention from investors where there is a prospect of future residential or other development.

However, agricultural land should not automatically be valued as future housing land.

The planning prospects, local policies, access, infrastructure, environmental constraints and surrounding development pattern all need to be considered.

Brownfield Land

Previously developed land can provide opportunities for redevelopment.

Potential examples include:

• Former industrial sites

• Disused warehouses

• Vacant commercial buildings

• Former employment sites

• Redundant car parks

• Previously developed urban plots

Government guidance on effective land use recognises the importance of making effective use of land and considering whether allocated sites have a realistic prospect of being developed for their intended use.

Commercial Development Land

Commercial sites can sometimes provide planning opportunities for:

• Residential development

• Offices

• Retail

• Industrial units

• Mixed-use schemes

• Higher-density redevelopment

The potential depends heavily on the local planning framework and the physical characteristics of the site.

Land With Existing Planning Permission

Land that already benefits from planning permission generally provides greater certainty than land based entirely on speculative planning potential.

However, investors still need to review:

• The approved plans

• Planning conditions

• Section 106 obligations

• CIL liabilities

• Implementation deadlines

• Approved unit numbers

• Access requirements

• Infrastructure requirements

• Whether the permission has been implemented

A planning permission should therefore be assessed as a complete development package rather than simply treated as a certificate that the land is valuable.

Land With Planning Potential vs Land With Planning Permission

These are very different investment propositions.

Planning potential means there may be a realistic opportunity to obtain permission.

Planning application means a proposal has been formally submitted.

Planning permission means the relevant authority has granted permission, subject to any conditions.

Implemented planning permission means the permitted development has begun or been carried out in accordance with the permission.

The greater the planning certainty, the more evidence an investor may have for assessing development value.

However, even permitted land still requires a full financial appraisal.

How to Find Land With Planning Gain Potential

Investors looking for development land should investigate more than commercial property portals.

Useful sources of information can include:

• Local planning authority websites

• Local plans

• Planning application registers

• Strategic housing land information

• Brownfield registers

• Local development documents

• Planning policy maps

• Council regeneration strategies

• Previously approved applications

• Neighbouring development schemes

Local authorities can also undertake calls for sites to identify land that landowners, developers and other stakeholders believe could have development potential. Government guidance describes these exercises as part of the process of identifying potential development sites.

Being identified through such a process does not guarantee planning permission.

Check the Local Plan Before Buying

The local plan can be one of the most important documents when assessing development land.

It can provide information about:

• Housing allocations

• Employment land

• Green Belt

• Conservation

• Transport

• Density

• Design

• Infrastructure

• Regeneration

• Protected land

• Future development areas

A site that appears attractive because it is close to an expanding town may still face significant planning constraints.

Investors should therefore establish what planning policies actually apply to the specific site.

Planning History Can Reveal Development Potential

Previous planning applications can provide valuable evidence.

Check whether the land has previously been subject to:

• Planning applications

• Refusals

• Approvals

• Appeals

• Pre-application discussions

• Applications for change of use

• Applications for extensions

• Applications for residential development

A previous refusal does not necessarily mean that the site has no future potential, but the reasons for refusal should be carefully understood.

Similarly, a previous approval does not automatically mean that a new proposal will receive the same treatment.

Assess the Location of the Land

Location is fundamental to planning gain.

Government appraisal guidance notes that land value is influenced significantly by its use and location, with factors such as housing demand and access to amenities and transport potentially affecting land value.

Investors should therefore consider:

• Population growth

• Housing demand

• Local employment

• Transport links

• Schools

• Shops

• Healthcare

• Existing development

• Infrastructure

• Local property prices

• Rental demand

• Regeneration activity

A site with planning potential but weak end-user demand may not produce the expected development value.

Calculate Gross Development Value

Gross Development Value, or GDV, is central to development appraisal.

For a residential scheme, a simplified calculation might be:

GDV = Number of completed homes × expected market value per home

For example, if a proposed development contains 20 apartments with an estimated average value of £250,000:

20 × £250,000 = £5 million GDV

However, the £5 million figure is not the value of the land.

The developer must deduct construction, professional, finance, planning and other costs before calculating the residual land value.

Government appraisal guidance uses GDV as part of the process for determining land value and land value uplift.

Understand Residual Land Value

Residual land value is particularly important when buying development land.

A simplified appraisal might look like:

GDV

minus

Construction costs

minus

Professional fees

minus

Finance

minus

Planning and infrastructure costs

minus

Section 106 and CIL

minus

Marketing and sales costs

minus

Contingency

minus

Developer's required return

equals

Residual land value

Government viability guidance similarly explains that development viability considers the value generated by a development against its costs, including gross development value, costs, land value and developer return.

This is why a seller's asking price for "development land" should not automatically be accepted as the site's true investment value.

Planning Gain and Section 106

Section 106 agreements can affect the financial value of development land.

Planning obligations can require developers to provide infrastructure, affordable housing, financial contributions or other measures necessary to make development acceptable in planning terms.

Government guidance states that planning obligations must be necessary, directly related to the development and fairly and reasonably related in scale and kind.

A land investor should therefore investigate the Section 106 position before calculating the potential planning gain.

Community Infrastructure Levy

Community Infrastructure Levy, commonly known as CIL, can also affect the economics of a development.

Where CIL applies, the charge can become an important development cost.

The government’s viability guidance specifically identifies CIL and Section 106 as costs that should be accounted for when assessing whether a site is financially viable.

Investors should establish the relevant local charging position before committing to a purchase.

An Illustrative Land Planning Gain Example

Consider a hypothetical parcel of land with an existing value of £400,000.

An investor believes the site could potentially support a residential development.

After planning permission, the land might have a potential market value of £1.2 million.

The headline uplift would appear to be:

£1.2 million - £400,000 = £800,000

But the investor still needs to account for:

• Planning costs

• Surveys

• Professional fees

• Infrastructure

• Section 106

• CIL

• Finance

• Acquisition costs

• Other development expenses

If those costs materially reduce the amount available to the developer, the actual economic benefit will be considerably lower than the headline £800,000.

This is why government guidance treats land value uplift as a net concept after allowing for the costs of changing the land to its new use.

Hope Value and Land With Planning Potential

Land does not necessarily need to have planning permission to have development-related value.

Hope value reflects the possibility that land may obtain planning permission for an alternative or more valuable use in the future.

This can form part of a property's market value where there is credible evidence supporting the prospect of future development.

However, hope value is inherently less certain than an existing planning permission.

Investors should therefore avoid treating speculative development potential as guaranteed planning uplift.

Buying Land Before Planning Permission

Some investors purchase land before planning permission because they believe the land is undervalued relative to its potential future use.

This can offer an opportunity to participate in the creation of planning value.

It also creates significant risk.

Planning permission may:

• Be refused

• Approve fewer units than expected

• Require expensive conditions

• Require infrastructure works

• Create affordable housing obligations

• Take longer than expected

• Produce a scheme that is financially unviable

The purchase price therefore needs to reflect the level of planning uncertainty.

Overage Agreements and Future Planning Gain

Landowners who sell land before planning permission may sometimes seek to retain an interest in future planning uplift.

One mechanism is an overage agreement.

An overage arrangement can provide for an additional payment to the seller if a specified future event occurs, such as planning permission being obtained or implemented.

Government property guidance gives an example of an overage arrangement where a plot is sold without planning permission and the seller may receive a further payment if the buyer subsequently secures permission and the land increases in value.

The wording of an overage agreement is important because it needs to define the trigger event, calculation method, payment mechanism and duration clearly.

Where Investors May Find Land With Planning Gain Potential

Potential opportunities can arise in many parts of the UK, including:

• London

• Birmingham

• Manchester

• Bristol

• Leeds

• Liverpool

• Nottingham

• Sheffield

• Newcastle

• Glasgow

• Edinburgh

• Cardiff

The investment case differs between locations.

London may involve higher land prices and higher development values, while regional markets can offer different relationships between acquisition costs, construction costs and completed property values.

Investors should assess each site individually rather than assuming that planning gain will be similar across different cities.

What to Check Before Buying Development Land

Before purchasing land because of its planning potential, investigate:

• Current lawful use

• Planning history

• Local plan allocation

• Planning policies

• Existing planning permission

• Planning conditions

• Site access

• Highways

• Utilities

• Flood risk

• Ecology

• Contamination

• Protected trees

• Heritage restrictions

• Conservation areas

• Green Belt considerations

• Section 106

• CIL

• Development density

• Comparable property values

• Construction costs

• Finance

• Expected development timeframe

• Exit strategy

The more assumptions the appraisal depends upon, the more carefully the investor should stress-test the numbers.

Land With Planning Gain and Development Finance

Planning-led land purchases can require capital well before construction begins.

Costs can arise from:

• Land acquisition

• Planning consultants

• Architects

• Surveys

• Legal work

• Planning applications

• Environmental reports

• Engineering

• Finance

• Infr