I was asked in a comment on this blog last night why I did not emphasise land value taxation as a wealth tax. In fairness, the question could have been asked: why do I not place much emphasis on this tax at all, because I do not.
The reply I have has been adapted as a new glossary entry, as follows:
How Land Value Tax (LVT) is meant to work
A Land Value Tax charges a levy on the unimproved value of land, excluding buildings and other improvements. The theoretical case is attractive. Land is fixed in supply, cannot be hidden or relocated, and much of its value is created by collective action, such as the granting of planning permission, development of infrastructure, creation of transport links, the building of schools, and the strength of the surrounding community. Taxing land value should therefore capture unearned gains, discourage speculation and hoarding, and do so without reducing productive investment, because land cannot be withdrawn from use.
In theory, the tax should fall on landowners rather than occupiers, since the supply of land is perfectly inelastic. That is why LVT is often described as an efficient and progressive wealth tax.
Why this breaks down in practice
1. Valuation is a fundamental problem
Separating land value from buildings is technically possible, but it is not simple, transparent, or intuitive. Valuations would be disputed, frequently revised, and hard for taxpayers to understand or verify. That matters politically. A tax people do not understand, or trust, will not sustain consent, however elegant the theory. Administrative costs, appeals and uncertainty would be significant.
2. Incidence is not as theory predicts
In real-world housing markets, and in particular, in the UK's highly supply-constrained one, landlords often pass costs on through rents. Without rent controls, strong tenant protections and major planning reform, LVT risks falling on occupiers rather than owners. At that point, it stops functioning as a wealth tax and becomes another charge on living somewhere, disproportionately affecting renters and lower-income households.
3. It is not, by itself, a reliable wealth tax
Wealth is multidimensional: financial assets, business ownership, intellectual property, offshore holdings and inheritance. LVT captures only land-based wealth. In economies where wealth accumulation increasingly occurs through financialisation rather than land alone, LVT misses large concentrations of power and income.
4. Local government funding risks are real
If LVT replaces council tax and business rates, revenues become sensitive to valuation cycles and political pressure. Sharp land price adjustments could destabilise council finances unless the central government guarantees funding. That reintroduces dependence on grants and undermines claims that LVT strengthens local fiscal autonomy.
The realistic conclusion
LVT might have uses, but it is very far from a silver bullet. It can help deter land hoarding and speculation, especially on undeveloped or vacant land, but on its own, it is a weak and potentially regressive substitute for serious wealth taxation and alternative or local authority land-based taxes.
Without complementary policies, including rent regulation, planning reform, strong tenant protection, and guaranteed central funding, LVT risks shifting the tax charge onto tenants and leaving councils exposed. That is why it should be treated as a supporting instrument at best with regard to both wealth and local taxation.
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Would a ‘property tax’ be simpler? Tax on the value of any land or buildings you have title to? Is that how rates used to work? In terms of handling the workload of valuation for tax, could people be required to submit their own valuations through a simple portal on HMRC? If this register were open for the public to inspect then disingenuous low valuations would be auditable by concerned citizens. At the same time, if a property is sold at a higher price than the valuation, this could trigger an investigation? Does an open ownership register sound too much like Stasi citizen surveillance? We can already search for property owners but it is quite a cumbersome process and you have to specify each property you want to know about and cause administrative work for the land registry staff.
Why bother?
There are so many better options to use first in the Taxing Wealth Report 2024.
Yes…. but property does seem to me to me an “under-taxed” or at least “wrongly taxed” asset. Stamp Duty makes moving costly (particularly for larger houses) so prevents mobility both geographically (to a new job) and generationally (old folk down-sizing). So, I think a modified and increased council tax based around a new valuation would make sense.
CGT and LVT have too many practical and political barriers… so I suspect that tweaking Council Tax is the “least worst” option.
I do think some property use needs to be taxed a lot more..
I agree
But LVT makes little sense
Its quite interesting because there is support for a LVT in Scotland BUT and often by the same people support for ‘Compulsory Sale Orders’ – which I think is a very sensible idea.
See https://www.landcommission.gov.scot/downloads/5dd6a16d88752_CSO-Proposal-final.pdf
These are an alternative to a Compulsory Purchase Order (CPO) and one of the reasons for it is that in the case of Commercial Land or Property because the market is not very liquid so its hard to establish a value for Compulsory Purchase BUT by putting the property up for sale that gets around the problem.
So if its difficult to implement a CPO because you cant establish a value for Commercial Land and Property imagine doing it for all landholdings?
My suggestion might be a tax on leases as most business premises are leased similar to VAT with separate arrangements for ‘owned’ commercial property and empty land
I do like the idea of LVT, but I guess, as your Taxing Wealth report shows, there are many other more low-hanging tax fruit!
I agree we should implement the taxing wealth report. 100%. I despair that you are not chancellor of the exchequer. I suppose I’m a little bit obsessed with the idea of everyone gradually owning the land, homes and other buildings they already pay for with rent. Any change from a perpetual rent system to a gradual transfer of ownership contract would need asset taxation alongside it so that people didn’t just hoard land and buildings to cash in the asset value accumulation without in the meantime making the properties available for rent or ‘gradual purchase’. That is my reason for being preoccupied with how to implement a progressive property tax that makes owning more than you use without letting those properties unprofitable. My preference would be to err on the side of making such practices decidedly costly.