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July 24, 2006

Land Value Tax

So the Tories are proposing a land value tax. Good, good.

Taxing the unimproved value of land is one of the best forms of taxation, has the least distortions upon the economy and behaviour.

PLANS to replace a myriad of unpopular taxes, including council tax, with a flat-rate 1 per cent levy on the value of all homes are to be considered by the Conservative Party.

In its submission to the party’s Tax Reform Commission, the influential Conservative Bow Group has proposed that four separate taxes — council tax, inheritance tax, capital gains tax on property sales and the TV licence fee — be scrapped and a new single-rate property levy introduced.

Under the “land value tax” wealthy homeowners in London and the South East would see their annual bills rise, and would pay more than the rest of the country. But the authors of the report say that it would remove the one-off burden of inheritance tax now faced by thousands of middle-income families in the South East.

The cheapest 20 per cent of properties, worth £70,000 or less, would be exempt from the tax entirely, meaning that thousands of low-income homeowners would pay no levy.

Ah, they’re going to tax houses not land. Silly buggers. This isn’t land value taxation at all. Everyone, poor and rich alike, business or individual, farmer and government, should pay a levy on the unimproved value ofthe land they occupy or work. Forit is precisely the society around that land that gives it value, whether it be by the infrastructure of a city or whatever.

This is all old Henry George’s idea (and he wanted it to be the only tax) but the important point is that it is not the structure or the improvements that are taxed, but the land itself.

July 24, 2006 in Taxes | Permalink


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Land value tax. Good idea, but...

How do you calculate the unimproved value of land? The value of a bit of land depends on the use to which it is put. Seaside land is too salty for agriculture, but prime for housing.

Surely you just mean tax the land area, and let other people work out its value?

Posted by: William McIlhagga | Jul 24, 2006 8:50:35 AM

I'm not clear - the Times article does describe it as Land Value Tax and then talks about "property" value. Which one is the "shorthand" is not clear. There are a few outstanding problems right now about taxing just land values - there is not a full register for example. But that is happening. And the Lib Dem proposals start from a "progressive property tax" with the intention to morph into LVT only when it becomes easier to value (a full register is expected early next decade for example).

By including a "homestead allowance" (which in other proposals has been linked not to a standard "£70k" nationwide but to the average minimum cost of a home) you do approximate to land value reasonably well.

But it's actually quite easy to value land values alone. There are enough reference points - two houses the same in two different areas one higher one lower the difference must be location value for example. Land trades separately from houses too - developers make big decisions based on land values - if they are accurate enough for them to base big investment decisions on they should be robust enough for a tax system.

One of the beauties of LVT is that the market does effectively decide what your land value and therefore tax bill is - which is a good thing. You would link it to planning - indeed in the original Town and Country Planning Act it was seen as an integral part of the planning system. The community decides what use is appropriate for particular areas, as it does now, and the tax is based on the "optimal planning use" for any site in that category - giving the planning system teeth and the tax system a natural "brake" on runaway speculation.

But it's good they are prepared to think about it. Will wait to see whether they really mean land, or property, and if so, whether they mean all land or just housing land. Very important questions for the success of an LVT system.

Posted by: Jock Coats | Jul 24, 2006 11:13:24 AM

What a great idea-funding local government by a national tax.

Posted by: james C | Jul 24, 2006 11:59:32 AM

Oh great, so they propose to replace a regressive tax that hits hard on pensioners who still live in their old family homes...with a regressive tax that will hit hardest on pensioners who still live in their old family homes.

Some improvement, that.

Posted by: andrew duffin | Jul 24, 2006 3:36:15 PM

Used to be called "site value rating". Was Liberal policy in the early 60s.

If you value economic efficiency above all else, it's the way to go - you'll get the maximum use out of the land, won't you? Hard luck on the ancestral relicts, but can't stand in the way of progress etc etc.
And at least it has a virtue. I can't think of any other local taxation concept that has any virtues at all, least of all the LibDems' local income tax.

Posted by: dave heasman | Jul 24, 2006 4:45:36 PM

Forget the clever spin, this is a wealth tax. Rest assured that after a while (one or two parliaments) it will be enforced in addition to (rather than instead of) all the other taxes it's meant to replace and will also include other assets besides property.

Posted by: Umbongo | Jul 24, 2006 6:04:42 PM

Apparently the 10 proposals should be considered as a whole - no "pick'n'mix" ...
They don't appear to have been reported in toto, but they're at:

Bow Group pdf

The summary is:

1. Employment and Self-Employment Income: The personal allowance will be
increased to £11,000. Employee’s National Insurance and Working Tax Credits will be scrapped and amalgamated into a single income tax rate of 38% on all earned income above the personal allowance.

2. Business Taxation: Employer’s National Insurance will be scrapped and corporation tax will be increased to 38% on all trading, professional or rental income. Gimmicky tax breaks such as R&D tax credits or the Corporate Venturing Scheme will be scrapped. Business rates will be reduced to 30% of the rateable value, without exemptions for unoccupied business premises.

3. Reducing the Compliance Burden: The UK’s tax year-end will be set to 31
December. Businesses will pay tax on their accounts profits, subject to pragmatic add-backs; unnecessary complications such as the schedular system and capital allowances will be scrapped.

4. Investment Income: There will be no higher rate tax on dividends from, or Capital Gains Tax or Stamp Duty on disposals of shares in UK companies. Non-repayable income tax at 20% will be deducted from all bank and bond interest, with no further tax being due. Gimmicky tax breaks such as ISAs, PEPs and TESSAs, EIS, VCT and Film Reliefs will be scrapped.

5. Land Value Tax: Council Tax, Stamp Duty Land Tax, Capital Gains Tax on
disposals of land and buildings, Inheritance Tax and the TV licence fee will be scrapped and replaced with a “Land Value Tax” of 1% per annum on the value of all residential properties. The first £70,000 in value per household will be exempt.

6. Child Benefit and Nursery Funding: Child Benefit will be increased to £36 per week for children under 5. £60 per week will be paid towards nursery costs for children aged 2-4.

7. A Basic Cash Benefit: Adults not in paid work (or earning less than £11,000) will be entitled to a non-contributory, non-means tested, non-taxable Basic Cash Benefit (“BCB”) of £80 per week, but will not also be entitled to a personal allowance for tax or PAYE purposes.

8. Citizen’s Pension: From age 60, the BCB will increase by £3.75 per week for each year of age, up to age 71, at which point it will reach the maximum of £125. At age 66 the payments will be re-branded as “Citizen’s Pension”.

9. State Second Pension: The State Second Pension entitlement will be frozen and phased out over time.

10. Private Pension Schemes: Tax relief for private pension contributions will be 38%, but restricted to the first £4,400 gross contributions per annum (£2,728, net of tax).

Tim adds: Very mixed bag there. High personal allowances and a flat tax. Great.

But how can there be a non-means tested benefit (BCB) if it is paid to those only under a certain income?

Savings taxation, well, I’d prefer a consumption tax but....

Posted by: Andy Cooke | Jul 24, 2006 10:13:41 PM