Guide
Tax, VAT, costs and legal traps in land agreements.
The terms that cost landowners most are rarely the headline price: they are the costs taken off before you're paid, VAT on the promoter's fee, the tax on what you receive, and clauses that tie up your land for longer than you expected. Take tax advice before you agree heads of terms, not after planning is granted, and have a specialist solicitor check the clauses below.
In this guide
Tax
Which taxes apply depends on how the deal is structured and who owns the land. This table shows where each one usually falls.
| Tax | When it arises | Who pays | Worth knowing |
|---|---|---|---|
| Capital gains tax | When you receive an option fee, and when the land is sold | You, or each owner | Individuals pay 18% or 24% in 2026/27, after a £3,000 annual exempt amount. A company owning the land pays corporation tax instead. |
| Inheritance tax | On death, or on some lifetime gifts | Your estate | Agricultural property relief covers only the land's agricultural value, not its planning potential. |
| VAT | On the promoter's fee, and on the sale if the land is opted to tax | Charged to you; whether you can reclaim it depends on your VAT position | Agree in the heads of terms whether fees include VAT. |
| Stamp duty land tax | When the land is bought | The buyer | Not normally a cost for the landowner. |
| Income tax | If the deal pays you a share of development profit rather than a price | You | Selling land you've held for years is normally capital, not income. Check how your structure is taxed. |
Capital gains tax on an option fee
An option fee is normally taxed as a capital gain in the year you receive it. If the option is later exercised, the fee and the sale are treated as one transaction, and the earlier tax is adjusted. For example, a higher-rate taxpayer with no other gains that year who receives a £50,000 option fee in 2026/27 would pay about £11,280: 24% of £47,000, after the £3,000 annual exempt amount. Under a promotion agreement, you pay capital gains tax when the land is sold. The current rates are on GOV.UK.
Inheritance tax
Land with planning potential can be worth far more than its agricultural value, and agricultural property relief only covers the agricultural part. If you're thinking about passing land on, or the owners are older, take inheritance tax advice before you sign.
VAT
A promoter's fee usually carries VAT at 20%. Whether you can reclaim it depends on whether you are VAT registered and whether the sale itself is taxable, which can turn on whether you have opted to tax the land. The sums are large: on a promoter's share of £1,140,000, VAT at 20% is £228,000. Agree in the heads of terms whether the fee includes VAT, and take VAT advice before you sign.
Costs
- Your professional fees. Promoters normally contribute to your reasonable legal and agent fees for negotiating the agreement. Check the cap, and whether the money is later recovered from your share of the sale.
- Promotion costs. Under a promotion agreement the promoter recovers its costs from the sale before the split. Insist on a cap, a clear list of what counts, and no interest unless agreed. On an £8 million sale with a 15% share, every extra £100,000 of costs recovered cuts what you receive by £85,000.
- Planning obligations. Section 106 contributions, affordable housing and the Community Infrastructure Levy all reduce what a housebuilder will pay for the land.
- Sale costs. Marketing, legal and agent fees on the final sale are usually deducted too. Check who appoints the selling agent.
Legal traps
- Long terms that extend themselves. Extensions while an application or appeal is live are normal. Make sure every extension has a firm end date.
- Exclusivity before terms. Be wary of signing an exclusivity letter before the heads of terms are agreed.
- Entries on your title. The promoter will register its interest at HM Land Registry. Check how it is removed if the agreement ends.
- Limits on your use of the land. Check you can keep farming, renew tenancies and stay in environmental schemes.
- The minimum price and who decides to sell. A low minimum price, or a promoter who controls the timing, can force a sale you'd not choose.
- Costs that survive the agreement. Some agreements let the promoter recover its costs if you sell within a set time after the agreement ends. Know how long that tail lasts.
- Assignment and change of control. Find out what happens if the promoter passes the agreement on, or is itself sold.
- Your retained land. Protect access, drainage and services to any land or home you keep.
- If the promoter fails. Ask what happens to the agreement, and to the entry on your title, if the promoter runs out of money.
- Your own obligations. You'll usually promise to support the planning application, sign forms, give access and not object. Make sure those promises are limited to what's reasonable and that the promoter pays any costs they create.
- Problems with your title. Unregistered land, missing access rights, old covenants or unclear boundaries can delay a sale for months. Have your solicitor check the title before you sign, and agree who pays to put right anything found later.
None of these traps is unusual, and a good promoter will expect your solicitor to raise them. A promoter that resists reasonable changes on every point is telling you how the next ten years will go.
Before you sign
- Tax advice taken on the fee, the sale and inheritance planning.
- VAT position agreed in writing.
- Caps on promotion costs and on extensions.
- A minimum price you'd genuinely accept.
- Dated planning milestones and a right to end the agreement.
- A specialist land agent and solicitor acting for you alone.
Then check the promoter's record: start with our 12 questions to ask, and see how the money flows in promotion agreements explained.
Questions landowners ask
When should I take tax advice?
Before you agree heads of terms. The structure of the deal, who owns the land and when payments arrive can all change the tax you pay, and they are hard to change once the agreement is signed.
Do I pay stamp duty when I sell my land?
No. Stamp duty land tax is paid by the buyer, not the seller.
Is VAT charged on an option fee?
Only if the land has been opted to tax. Most farmland hasn't been, but check, and take advice before opting, because the decision is hard to reverse.
Can I cap the promoter's costs?
Yes, and you should. Ask for a fixed cap, a clear list of what counts as a cost, and no interest unless you have agreed to it.
This guide is general information, not legal, tax or valuation advice. Tax rules change and individual circumstances vary, so take advice from qualified professionals on your own situation before you sign anything.
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