A commentator going by the name of Joe Polito has posted on the blog this morning suggesting that a desirable tax reform would be to introduce land value taxation.
His argument is that Martin Wolf of the FT favours the idea (which is true; he has for a long time) and that it is economically efficient. He references this claim by linking to a paper by a collection of renowned economists (Charles Goodhart, Michael Hudson, Michael Kumhof and Nicolaus Tideman). They suggest:
It has been well-known since the physiocrats (Quesnay 1756) and the classical economists (Smith 1776, Ricardo 1817, Mill 1848, George 1879) that a tax on the annual rental value or the capitalised asset value of unimproved land, assuming that land is put to its highest and best use, while excluding the value of buildings and capital goods currently situated on the land, does not distort incentives and is therefore desirable on grounds of economic efficiency. When the land value tax revenue is used to reduce taxes on labour or capital (buildings plus capital goods), output and economic welfare grows. In addition, a land value tax effectively pools property risk by reducing the private value of the riskiest component (land) of the property asset and transferring it to the whole community.
They go on, albeit using some slightly shaky assumptions, such as there being a closed economy where as a result external trade does not take place, to demonstrate their point, in theory.
And in theory I agree with them. Why wouldn't I? I have no liking for rentier activity within any economy and land rental and interest payments are amongst the two most offensive such activities, both extracting value from the economy for unearned reward for the owners of the assets giving rise to those income streams.
But, whilst knowing that I have always been cool on land value taxation. Long ago I learned that something can look really good on a blackboard or in an academic treatise but have no transferable value to the real world. Some of economics is most definitely like that. Much of the rest is of no value at all. Land value taxation (LVT) fits into the first of these categories.
It really does not worry me how good a tax LVT might be in theory. In reality I very much doubt it is of much use to the economy of the UK at this moment. There are three very good reasons.
First, there is no political appetite for such a tax. I am not in the business of promoting things that are not going to happen, however good they might be in theory. LVT has been known about for over a century. It has been actively promoted by some in recent decades. And no one with political influence has shown the slightest interest in turning it into reality. I am not going to be that person.
Second, there is very good reason for this. As noted above, LVT requires that ‘that a tax [be charged] on the annual rental value or the capitalised asset value of unimproved land, assuming that land is put to its highest and best use, while excluding the value of buildings and capital goods currently situated on the land'. Good luck with working that value out, I say. If you can work out how to do so for every piece of land in the UK and do so without tens of millions of appeals being made (there are 30 million properties and a lot more pieces of land that are registered without properties on them) then you know something I do not. And for the record, I really do not think AI will prevent those appeals pouring in. In that case a registry that might form the basis for this charge could be available in a decade or more's time, by which time it will be out of date as this value changes over time. There is very little chance of winning political support for that.
Third, pragmatically, this tax will reduce the value of land. That, you might think, is a good thing. The trouble is, much of that land is mortgaged and so introducing this tax will create a banking crisis. You could, of course, argue that if introduced gradually then the market would adapt. And so it might. Just as much as it might not. I suggest that's a gamble no politician is going to take.
As a consequence I hear what the proponents of LVT has to say and suggest that this tax has almost no hope at all of being used in practice. The best we can do is approximate to it by adapting existing taxes on land, which are undoubtedly also not fit for purpose. But, at least in thsoe cases we have a change of delivering something approximating to a better tax., whereas with LVT we have none at all. Of those two options I know which one I prefer. Adaptation it is, in that case. And LVT will remain on the shelf, except to inform a direction of travel for reform.
There is one final issue to mention. LVT exponents make clear that it reduces the economic distortions some taxes introduce into the economy. I suggest national insurance is the worst of these distorting taxes, because it discourages employment when that is something that we very clearly want. I accept the point, but I argue there are betters ways around that problem which are easier to implement.
What do I mean by that? My problem with LVT is that it is based on a mythical value that will never be explicitly recognised in an economic exchange i.e., in a sale value. The great thing about such values is that they are very much harder to argue with than imagined values. Like it or not, we usually value things on the boundary where and when their ownership changes. So an alternative to LVT has to have that characteristic or it too will fail. Such options are available, but that is for another time.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
I agree with your observations and would add after the caveat. Many businesses and house owners occupy tenements; all those above ground floor level have no direct contact with the land. Does that mean they should pay no tax?
I also feel that in practice it is likely to be very regressive.
The last is undoubtedly true – unless matched by other massive tax reforms and an extension of benefits
Those are further reasons why it would not work
If LVT was regressive, surely wealthy people would have been pressing hard for it? How is it regressive?
There is a very real risk that this tax might be significantly regressive. In other words, the amount of tax payable by those living in relatively small properties might, in proportion to their income, be much higher than the amount payable by those living in more valuable properties that nonetheless, have a low land value for the purposes of this tax in proportion to their overall income. There is also a very real risk of randomness in this relationship: those on low incomes might need to live in locations where there is, nonetheless, a high land value. There is as a consequence, a very real risk that this tax would undermine the vertical tax equity of any tax system in which it was used unless significant other reforms were to take place simultaneously at the time of its introduction. Those other reforms might include::
• Significant reductions in the rate of income tax or national insurance paid by those on low incomes.
• Substantial increases in benefits paid to those adversely impacted by this tax.
• Specific support for those unfairly discriminated against because of their need to live in areas of high undeveloped land value, even though they themselves enjoy relatively low income.
The difficulty of creating and implementing these countervailing measures is another reason why land value taxation is not attractive.
Poilitely, come back when you have somthign usedful to say, about which i will decide. Right now you are not.
The way this is dealt with in Hong Kong is that every business and household in a property is assigned a proportion of the LVT. There is some formula by which it’s done. The main criterion is floor area but there apparently are other considerations.
That previous comment of course should have read “a further caveat”
If I remember aright, this was one of the Liberal Party’s key policies. Strangely, it never came up on the doorstep; people were more interested in what Jeremy Thorpe had been up to! I was a candidate at a selection conference then and hadn’t prepared that well, and LVT was chucked at me … and my stumbling response led me to the door! The bigger insult was that one of the panel said I sounded like a Tory … now that really was offensive!
🙂
I think you got over it
A very good analysis, Richard. I have long been a supporter of LVT, but that is based on the theory behind the Tax, which seems impeccable. I hadn’t considered the practicalities, the most significant (from your analysis) seems to be the impact on mortgages.
So, what are your alternatives? Surely, there must be something than Council Tax?!
Pragmatically, council tax can be reformed and there are far better ways of taxing wealth
My series is developing
I am working on reforms 11 to 14 right now, one of which is on council tax
Council Tax is essentially an inefficient form of land value tax. How should it be reformed?
I will write on that in due course
And please note, you have had your full of Lvt trolling now
Richard,
LVT doesn’t need to be set at a ‘perfect’ value — it would be sufficient to put it at a ‘good enough’ value to reduce the current level of distortion. I am particularly interested in ‘under-utilised land’ — there’d be subtleties about set-aside or re-wilding. But let’s start with builders’ (or supermarkets’) land banks…….
Let’s take the land banks that are currently sitting not being developed – even though there is a cronic housing shortage. By leaving the asset undeveloped builders are not making the best use of an asset – but they also do not have a significant opportunity cost if left undeveloped — often it is classed as agricultural land. If however, when a developer buys land they have to pay a LVT based on the value of the land post development, there would be an incentive for those builders to get a cost / overhead off their books and to develop the asset. – This would surely help give builders a nudge in the right direction? Also, large builders currently drip-feed housing into the market (and therefore control the supply — which improves their profits) — they are not (particularly) incentivised to respond to shortage. Even the neocons couldn’t accept that is not a distorted market. We have all seen another negative impact when landowners/building owners leave buildings to decay for subsequent development – and many cities suffer the negative impact of the eyesore in the meantime. So there are other benefits, not just tax raising.
But the UK already has an equivalent of a LVT – but applied to another finite, not-replaceable resource – Radio Spectrum. Ofcom regulates the price that spectrum users should pay. Renewal of previously auctioned spectrum is set based on incentive pricing – where users are charged at an amount that a better user would pay. The intent being that users would not ‘hog’ the asset. Prices are not perfect — but a ‘land regulator’ with enough balls could set a value that would reduce the current distortion.
Interestingly, after the water and gas issues – the one regulator that Cameron’s govt wanted to target was Ofcom — probably the regulator with least egg on its face. Maybe Rebecca had something to say in those Oxford lunches and had more to gain by targeting Ofcom?
I get th3e theory
But there is nothing here that regulation could not deal with
So, tax is not required
How can regulation deal with the situation like that in Brighton, where a plot of land has been vacant since 1986, with planning consent for most of that period? The owners know how to run rings round the regulators.
Change the regulation to forfeit the planning permission
Richard, I confess I have always thought you understated the importance of land/land tax reform. The 1911 House of Lords crisis is the key. The House of Lords survived, having finally passed the buck on tax from land to capital. Capital (with the diligent well paid assistance of accountants and lawyers, who can make profits the length of any piece of string you select), has now managed effectively to pass the buck on tax from capital to the people capital or government deigns to employ. Tax is now a almost exclusively a consumer-employee burden. Unemployment and social stigma are the only way out of this reprobate society.
Wrong
There is ample opportunity to trap capital but little to tax land
Capital moves – fast. It is a faster gun than any government has ever managed to find. Land can’t move, save through subsidence. Government can always capture land; it is far harder to capture capital. That was my point
Of course land doesn’t offer the scale or money power of capital. That was not my point. I am offering the problem here. The solution is another matter.
But LVT is based on fictional values and that is not the basis for a tax. It cannot work.
And capital can now be located. Tax havens are nit the places they were. My work has guaranteed that.
The trap will last no longer than an army of expensive accountants and lawyers take to work out the loophole, and waltz through it. Deja vu, all over again …..
Land value tax is, or should be, based on rental values. They are not in the least bit fictional. You can get the general picture from sites like Mouseprice. Selling prices, are, I agree, a bit hit-and-miss, as well as being volatile.
Have you noticed how volatile rental prices are?
This is now like saying base property tax on variable interest rates
A very good reason for not using this tax
The challenge of determining the value of land could be addressed fairly efficiently by requiring the owner to choose it – under the condition that they make a legally binding commitment to sell it to any willing buyer for that price. At a stroke this relieves the burden of assessment from the state and ensures the owner provides a realistic assessment of their land’s value.
Unfortunately, that contravenes human rights
I do not think it could be made to stick
It nan be said to be depriving a person of an asset
Good point. But the state already has powers of compulsory purchase. So the deal could be that the owner would agree to selling to the state at his chosen valuation, and in return the state would generally refrain from exercising its right to purchase except where the owner’s assessment is plainly unreasonable. There would need to be some form of judicial process for challenging an assessment.
The power to compulsorily purchase is not lightly given nad has to be fair
The problem of land and taxation is critical in our cities now. The decline of an area is often a function of land allowed to lie unused or derelict untill it trashes a while neighbourhood and causes anti-social or criminal behaviour to develop. There is very limited capacity to use compulsory purchase for local authorities. The narrow right to unfettered property ownership rights over everything else is sacrosanct. The rule should be – “use it or lose it”. It will not happen. I am thinking of the blight of the BHS store, a decaying eyesore on the corner of Renfield Street and Sauchiehall Street in Glasgow, dragging down the area rapidly, because the leverage is not there. There are two ways to fix it; tax or compulsory purchase, but it isn’t going to happen.
Re: John Warren:
— It’s not just shops in Glasgow – or the (used to be stunning) building in the centre of Ayr. The problem of landowners hoarding land assets whilst allowing heritage buildings to decay exists up and down the country (see Private Eye’s Nooks and Corners).
From what I can see there are two problems that (some) folk in this forum are trying to resolve: Is LVT a practical idea; How do we ensure that finite assets are used for the best use (of society). Earlier, I was trying to use LVT as a way of motivating positive use of finite resources. So perhaps we need the introduction of a selection of tools to address the two problems.
RM has been arguing for practical solutions to show that tax can be raised if you know look to do so. He did say he wanted practical approaches in his mission. It seems to me that some of the other solutions are as easily dismissed and we still need to solve avoiding mis-use of land or buildings (there is an impact on many towns and cities) and to facilitate improving housing stock and homes for people.
Local authorities / planners need to be able to prevent hoarding and managed decay (it seems often when the owner of an building/land is offshore and/or not listed on the land registry). So the ownership needs to be clear whether an LVT is applied or not. In order to protect the public good, suitable values should be applied to account for the negative impact of past neglect, or a failure to respond when a consultation has begun.
Building regs need to be used to solve building issues, including those left vacant.
That said, I will be proposing massive multiples of Council tax be charged on them.
Determining land rental values is not especially problematic – it is a simplification of the system used for business rate valuation. You can build up the general picture by looking at records of rentals held on websites like Zoopla. For large tracts of the country, residential land rental values are about zero. The rent is just covering costs and giving a return on the buildings.
Most residential developments are on land sub-divided into identical plots. The land value of all the houses in a particular street is pretty much the same.
You might as well argue that taxes like income tax and VAT are impracticable due to the amount of information that has to be collected, and talking of VAT, the VAT gap in Romania is 34%, according to the EU.
Of course, it’s easy.
That’s why it has not been done since 1992.
And as I was the peer reviewer of that EU stidfy I might knpw something about it already. You are making a spurious comparison.
Although it is likely no longer the case, there was at least some political appetite for LVT not so long ago:
https://www.theguardian.com/politics/2018/feb/22/labour-says-land-value-tax-would-boost-local-government-budgets
Do I remember rightly that McDonnell was keen on replacing business rates at least with LVT? Would that more limited application of LVT be worthwhile in theory, and do-able in practice?
I think a council tax revision much more politically plausible.
I would suggest John McDonnell was not well advised on this.
LVT is I suggest a bit like (say) the superiority of the Great Western Railway, you either believe in and support it or dont.
However as we all know the adoption of LVT will result in better weather, cure all known diseases etc
Andy Wightman has some stuff on his website here
https://andywightman.scot/writings/publications/
For what its worth…….
The Housing Market is fairly ‘liquid’ so its not that difficult to establish the value of most homes while there seem to be some values quoted in terms of pounds per acre for farmland of various sorts by county so establishing values for some sort of ‘Homes Tax’ or ‘Farmland Tax’ isnt that difficult.
However the ‘Commercial Land’ market is a lot less liquid making it much harder to establish values. If you were looking at some sort of ‘business land tax’ while it isnt perfect how about some sort of levy based on the rent payable on the lease.
As its an area that I am close to and have some interest in I can make some proposals for some sort of ‘Residential Property Tax’ if anyone’s interested
Might it be reasonable to assume that at least some unimproved land is unimproved because the owner cannot afford to improve it. How then would they afford this tax?
Most land is improved
The conundrum is working out the unimproved value
Valuation of land is not a conundrum to a qualified valuer. Vacant land, and land with obsolescent development, is bought and sold.
We just have to do it maybe 40 million times
And you clearly do not undertsand then value used for LVT
40 million times? In the average street of terraced or semi-D houses on identical plots, the value will be identical. The real amount of work is about 5% of what you claim.
Politely, you really are stupid
I live in an end of three terrace on a modern development and we all have differemt plot sizes.
You really are making a fool of yourself.
A truism: taxpayers vote.
Twenty years ago, staying with a real estate assessor near Boston, I was much impressed with the Commonwealth of Massachusett’s approach to local property taxes.
In broad brush form:
Every year, local assessors declare the market value of every property in their city or township – land, location, use. The total of these values provides the measure of the township’s wealth, and each owner can work out their percentage share of that wealth.
Every year, the local council prepares its ideal budget and presents it to town hall meetings for debate, amendment and acceptance. The final, total budget is expressed as a fraction of the township’s value.
The tax levy on each owner is thus calculated to be the budget total divided by their assessed percentage of the township’s value.
https://www.mass.gov/guides/massachusetts-municipal-property-taxes
The system provides for:
* fair and current valuation;
* budgets set for real needs, not by false restraints;
* taxpayer contribution to budget debates;
* councillor accountability;
* clear relation between value of property and tax liability.
And taxpayers vote.
I suspect it was a little more complicated than that
Why did the landowner have to agree the ascribed value?
There is an appeal process, but it boils down to the liability to pay property tax wherever you choose to live in the Commonwaelth of Massachusetts.
Just as I accept Council Tax.
Richard
I agree that there is little appetite for a Land Value Tax but just as a matter of interest I think the best version of it is simply to base the tax on the land area only. Different rates could be applied to different uses of the land. The move to taxing the use of a scarce resource would I think be a move forward
“My problem with LVT is that it is based on a mythical value that will never be explicitly recognised in an economic exchange i.e., in a sale value.”
Some LVT advocates are not clear on this point. LVT is based on RENTAL VALUES. These are easy to extract from actual rentals. There is a “floor” to rentals in the poorer areas of the country eg places like Sunderland, where you can rent a 3-bed semi for around £800 pcm. The going rental for similar properties in places like Brighton, in commuting range of London, is about double that amount. The difference is location value ie land value. To a first approximation, the land rental value of residential property over large tracts of the country is about zero.
Most land value in the country is in urban property in commercial use. A substantial proportion of land rental value is already collected, inefficiently, through the business rates. Commercial land values are greatly depressed due to the presence of other taxes. The incidence of all employment related taxes ie PAYE Income Tax and NI (both employer’s and employee’s contributions) is on the employer; they are functionally equivalent to a payroll tax and cut into business profits, with a knock-on effect on commercial rental values.
VAT has a similar effect, since businesses are forced to absorb some or all of the VAT in order to maintain volumes of sales. This can be seen when VAT is cut; the cuts are not passed on in lower prices.
As noted, you do not understand that rental values are now heavily linked to interest rates
Nor do you understand VAT
I suggest you learn something about what you troll about
What is the relationship between rental values and interest rates?
Are you saying that the incidence of VAT is entirely on the consumer? VAT cuts are never fully passed on, which suggests that the incidence is at least partially on the sellers. You can see this in duty-free areas. Sellers charge what customers will pay.
Do you have to be rude? It would be nice to have an argued response when you disagree.
Rebtal values are skyrocketing right now because lanbdloird costs are rising
And you ask why am I being rude? Maybe because you havce not noticed such a basic point?
HMRC and the Land Registry would not have the resources to work out LVT. In some cases the ownership of land may be unknown, let alone the nightmare of working out what the value per acre or hectare is.
Precisely
To me this proposed LVT has the same flaw as current Council Tax and the much earlier Rates. It relies on a snapshot value of the property – whether sale or rental value – which becomes outdated and seen as arbitrary and inflexible. However I think it is good the idea is being aired, only by such ideas being discussed are the flaws going to become apparent – but also the benefits which might be worth trying to retain in an alternative proposal.
The idea I would like to see explored properly is a version of the French domestic property taxes which are based round a standardised measurement of living area. That is a date-independent parameter for the property that can easily be updated to cope with subsequent extensions etc (and by reference to the plans submitted for the required permissions, without needing a site survey). In practice you would probably want something a little more sophisticated and develop a simple formula with terms for not just living area but also the area of grounds (garden etc) and non-inhabited outbuildings (garage, sheds). Finally a factor would be applied to allow for the differential in values for different areas across the country and even within a locality, this could be determined from Land Registry records down to postcode area if required and updated periodically.
That makes more sense
Land and all other natural resource value arises only from society’s need to use them. “Ownership” of land/natural resources does not add one penny to their value. Land value and taxes are inversely related. Local and national government collecting land rent is not extracting anything from the economy – it is collecting wealth that is only created by society and which should be recycled to maintain and develop public services. By replacing distortive and avoidable/evadable taxes with land/natural resource rents, we will use them more efficiently and sparingly and the super profits “owners” of land/natural resources take will be used to benefit all, not just the super-rich. Land Value Tax (LVT) doesn’t affect the value of land, it may reduce the price which has been inflated by speculation and land hoarding. Every property has two values – the building value and the land/location value – done every day of the year and where two tier property taxes exist in the USA. Land rent was collected even before William the Conqueror claimed ownership of England who then rented parcels of land to his cronies in return for roads, armies, food and money.
I acceopt all your theory – inclduing on price, but the reality is that the vaue will change.
And the tax still emains unworkable.
It takes a lot of balls to swim upstream against certain ideas and all I can say to this is that Richard is being true to himself here – whether the downstream is orthodox or a misguided or explorative effort at being heterodox.
For me, knowing the ignorance that Martin Wolf can swim in, I’d err on the side of caution about anything coming out of Murdoch’s Times – a pig’s ear masquerading as a quality newspaper.
The potential abuse of a land tax is what worries me in age where taxes fall heavily on those who cannot afford them. And having worked in housing which uses land – land prices like house prices are not always in the real world.
Having also been involved in CPOs – I have yet to see both parties agree on valuations and not go back and forth arguing about it forever!!
The Land Registry has enough problems doing the job it has – it has a backlog of deeds that need updating and is being readied I’m sure for privatisation etc.
I think that rather than tax land as an asset, tax what flows from it and also where you can see the scale.
There – that is my opinion FWIW.
You know this area…
Thanks
If anything, your point of view illustrates the utility of money and tax and you have been very consistent in that respect.
Markets are messy places to dip into.
Mr. Murphy is quite right about LVT being politically impossible to adopt, by government of any party. He’s made a number of errors in his piece, but these are minor compared to the one thing he’s dead right about. That is, not even the poorest tenant will support LVT, because on the whole, even they aspire to rent seeking, one day. Yes, there are some more noble citizens, but they are in the minority and that minority never elected any government. This ‘wealth opportunity’ is the one thing that finally unites both left and right in perfect harmony. And is why no politician will be seen even thinking about it – they will be unelectable for 20 years, about the lifetime of a mortgage. There are 27 million households in the UK, each with nearly 2 voters. You see! Mr. Murphy has nailed it.
This is exactly the reason Dr. Adrian Wrigley and I invented and marketed a policy proposal called a Location Value Covenant, back in 2007. The Georgists and LVT fans hated us for it more than the landlords, which told us a great deal politically.
What is an LVC? It’s a way to collect government revenue, from rents, yet electively, so is a free choice of whomever owns the land title. The other big issue Mr. Murphy is right about on LVT is it undermines the financial system through sending mortgage valuations towards zero. And it is this exact problem that drove the design of LVCs, such that the policy did no harm to banking, per se.(I’m not a fan of banks but if you break them your idea won’t fly in this universe). So LVCs were designed to route around all the systemic flaws in LVT. I spent huge energy positioning them to all and sundry over about 7 years but I was only a minnow not a celebrity politician. They’re still available and I feel the timing will soon be right once again now interest rates are back up. And we’re expecting an inevitable recession where LVCs’ design once again can help government help families get a roof over their heads, without screwing up the current system or drawing fierce political resistance.
You can find out more at : http://locationvaluecovenants.blogspot.com/2023/07/sfr-group-public-policy-links.html
Robin Smith, North Stoke, UK.
Thanks
Bit I note you have not made progress and I am only concentrating on proposals that might at least have a chance of doing that.
Yes, we’ve made significant progress. Soon to be visiting the Treasury on it.
I don’t really follow your approach though, taxation as it stands has become progressively regressive. And you devote all your energy to it.
Can you define what you mean by ‘progress’ please, in the event one day I need to convince you?
Wait and see what I publish, I suggest.
The irony is that Danish nationals are liable for Danish Land Tax wherever in the world their property is so some UK land and property is having Danish LVT paid on it
I know some Danish nationals who are most certainly unaware of this.
Are you sure that is right?
This is unlikely: how would the Danish authority manage the foreign valuations, on trust?
You cite the difficulty to value land as the main problem to a LVT. Yet you favour wealth taxes. Surely it is the same problem but much greater? As so many different assets form a persons wealth, particularly the super wealthy and a lot will have no obvious means to value. And if not all assets are valued in a wealth tax then the system will be both unfair and open to abuse.
I do not favour wealth taxes.
I favour higher taxes on income from wealth and gains from wealth.
Mr. Murphy, please can you define what you mean by wealth? Given the intent is to tax the income from it.
The figures recorded by the ONS as wealth
Richard,
You sowed the seeds of doubt in my mind, but
https://skat.dk/data.aspx?oid=2348578
If you own property outside Denmark, you have to pay property value tax in Denmark, but you can have tax relief for the tax you have paid abroad. To get the tax relief, you should enter information about your non-Danish property in your preliminary income assessment under ‘Købt udenlandsk ejendom’ (Non-Danish property bought).
In addition, you should enter information about your non-Danish property in your tax return.
I might have a quiet word
I am intrigued to see such a lot of comment (69 and counting) on this subject – clearly LTV has a lot or ardent proponents.
I would ask all those that support LTV…
“Which of Richard Murphy’s proposals on changes to the current tax system do you reject?”.
In theory, LTV might be “best”…. but the best is the enemy of the good. Let’s campaign for the possible and see where it takes us.
Thanks
No, I at least am not in a contest here. I am simply concerned by the extent to which land (fundamental in so many ways) is now financially overlooked. Let me give an illustration; crossrail (1 and 2). When each new station was built there was an explosive, exponential growth in property prices within say, a six block area (this was analysed by a major estate agent). Billions were made, often by people who had presided over derelict property that may have dragged down whole neighbourhoods for decades. Crossrail 2 followed rapidly, with more public money, to make easy private windfall profits out of property. I rest my case
Danish land tax and Scottish land reform campaigner Andy Wightman have already been noted in these comments. The Danish government website outlines the former and a blog post by the latter points out the anomaly of a Danish citizen paying this tax on land holdings in Scotland suggesting a system of LVT has been worked out somewhere. http://www.andywightman.com/archives/2186
Yank here who got lost trying crossing the pond.
Is the LVT discussed here equivalent to USA Local (county and/or city) Property Tax?
If so, the US form of LVT works here but includes all property (land & buildings) and is paid by the owner of said property.
No
That’s generally like our council tax
Richard,
But is not UK Council Tax a “head Tax”? Whereas USA Property Tax is based on the value of the property with some exemptions to some qualifiers (such as a Homestead Exemption).
If I rent a flat from you located in Manchester, do I pay council tax?
No – council tax is not a head tax.
We had such a tax for two years – and heads rolled as a result.
And yes, you would pay the tax if you rented a property.
Richard,
If I rented an apartment or condo (flat) from you in Miami Beach, City of Tampa or Orlando, I would not pay property tax directly to Miami Beach, City of Tampa or Orlando. However, property tax amounts do influence rent rates.
So?
Richard,
Please accept my humble apology if I offended you.
I am just trying to understand the difference between US Property Tax, UK Council Tax and proposed UK Land Value Taxation. I find it all very confusing.
There is no proposed UK land value tax
Some suggest it
Don’t many jurisdictions already value land?
I don’t see what the difficulty is, especially if we make gradual changes like shifting just a little more tax burden on land and away from structures, incomes at the bottom etc.
Who does?
Pennsylvania, for one, lists land values and assessments separately. Cities in PA choose the weighting of their split-rate property tax so if they want to charge 4x more for land than improvements, they can. I take your point that people aren’t jumping for tax reform though, Pennsylvania is a great example of that. Some cities are rolling back their weightings, going back to more traditional property taxes.
AGFRR (Annual Ground Floor and Roof Rent)
Area of house floor(s) and roof(s) along with area of garden taxed per square meter.
Area of land owned and its use taxed at different rates.
Avg home around £1600 per year.
Example given in book explaining it would bring in £120bn for Scotland.
Deeply regressive then
Individual valuations of all plots is of course a stupid idea – LVT would be based on averaged out values for all homes in any area with the same geographic advantages. So you’d average out all plots, the ones with buildings and garden in good repair, poor repair and derelict. Ideally, a few thousand homes at a time – this also gives you a big enough sample of recent transactions (sales or rentals). By interpolation, you can then subtract away the value of buildings and improvements to arrive at pure location value. Please read here:
https://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-receipts.html
I do support LVT but only with other progressive reforms like Job Guarantee, ban private healthcare, increased disability benefits and potentially other taxes.
The question for those who oppose LVT is: the surroundings (whole of society) give locations their value – none of it is the landowner’s effort. Land values are highest in Central London in the UK. Why should landowners collect or enjoy all that land rental value (excluding buildings), when the whole of society creates land rental values? LVT already exists paid to landowners. How is this fair?
There are massive administrative, compliance and enforcement costs associated with assessing and collecting all non-LVT taxes which amount to a few of per cent of GDP. The costs of assessing (and appealing against) taxes on land values are negligible in comparison. Advantage of LVT is all sites which can be profitably be put to use will be put to use instead of being left vacant or derelict, so commute times will be shorter. Supply of locations is fixed so no ‘deadweight losses.’
You entirely miss the point
No one has revalued since 1992 and nothing you say is going to change that
I am interested in what is possible. Lvt is not.
The council tax on any home bears so little relation to its 1991/92 value as to be meaningless. In practice, an annual council tax bill can be anywhere between 0.1% and 100% of a home’s current site premium/location rent (Mayfair vs Blaenau Gwent, or wherever the cheapest houses are). Council Tax is made up numbers. So what? The only reason we have this stupid system is because of Home-Owner-Ist resistance to a sensible valuation system, which was the same under Domestic Rates.
So this is akin to a spoiled child smashing a new toy with a hammer and then complaining that is doesn’t work. Northern Ireland shows that it is not too difficult to update valuations. They assessed market values in 2005 and the Domestic Rates is about 0.7% of each home’s 2005 value.
I am delighted there was such a broad exploration of this very important topic.
Let me address a few concerns.
1. This video is cued up to an expert on property assessment and a expert resident where Land Value taxes work https://youtu.be/Y_Jc7fzcKiM?t=5543
2. It has been proven to work in Canada too. Professor England has a paper on how well it worked in Vancouver Canada. Vested interests lobbied against it, and the city became very costly. https://sci-hub.st/10.1111/ajes.12218
3. Another arrow in this design quiver is to have gradually increasing capital gains included for commercial real estate sales. Stiglitz and Hudson addressed this issue explaining we should not make money on a gift of God.
A Bank Economist agreed in this paper along with many other ideas.
Broadly increase capital gains inclusion rate on real estate:
For example, allow all capital gains on non-principal residences to be taxed at the full marginal income tax rate. The maximum capital gains tax with full inclusion would become about 53% in Ontario versus 26%.
speculation tax:
A special capital gains tax on the sale of residential real estate purchased from today forward, with the rate falling to zero over five years of holding the asset.
On non-principal residences, the maximum capital gains tax would become the current rate (e.g., about 26% in Ontario) plus the speculation tax.
On principal residences (if applied), the speculation tax would effectively become a capital gains tax that fades through the five-year window.
https://economics.bmo.com/en/publications/detail/c76a7448-4306-4a50-a335-3a7c98fcbe9e/
Thanks