Land Value Taxes

Years ago, before there was such a thing as Liberal Democrats or the Poll Tax or Council Tax,  the Liberal Party had a policy to replace the rates with something called Site Value Rating.  SVR really didn’t get the pulse racing and was widely confused with STD (a way of ringing someone up in another town without going through the operator) and STV, a form of proportional representation.

But it was a good idea then and it’s a good idea now.

You are taxed for the value of the land you occupy, regardless of the value of any buildings on it. For the Liberals back in the day it dealt with the problem that if you put a bathroom, or an inside lavatory, in your house, your rateable value would go up and you’d pay more rates – which was one reason the rates were so unpopular. 

Land value taxes, or Site Value Rates, are fair. Land value is created as much by the community around you as by your occupation of the site. If you get planning permission for a new whatever, the land value goes up. You are taxed for that increase, but not for the value you put in when you build the new whatever.

But they suffer from the same problem, subjective determination, that I outlined in my previous post about wealth taxes. However, it is manageable, because we are only dealing with one class of asset rather than anything from shares to thoroughbreds. There is an established land valuation profession, and a government agency, the Valuation Office Agency, that does it all the time for other tax purposes. So although it’s complicated, and will create something of an opportunity for tax advisers, it’s doable.

However, there is one thing that must be done with the new tax, and that’s that revaluations should be continuing, with values always indexed to  a taxable date in any year. Rates revaluations were always politically contentious and they kept on being postponed until domestic rates were abolished. There’s still a big issue with business rates and the delayed business rates revaluation is having a bad effect on the high street.   If revaluations are ad hoc, it will create all kinds of problems.



3 comments so far

  1. Mark Wadsworth on

    Agreed to all that apart from this bit:

    “But they suffer from the same problem, subjective determination”

    Valuations are easy, I explained one easy way of doing it here.

    And whatever system of valuations you use, it is still far less arbitrary than things like the income tax rate, the VAT rate and the NIC rate, which all ideally would be zero,

    • ejoftheweb on

      You need to distinguish the base from the rate. Rates are politically determined, with fiscal and other policy goals in mind. For VAT, the base is determined objectively – it’s the value of an actual transaction; so is most income (e.g. wages and salaries), but there is often a judgement call as to whether any particular flow of cash is income or the realisation of an asset. Land values are determined by the surveying profession, but it still needs the judgement of a surveyor to value any particular property. And then there needs to be an appeal process, because sometimes the surveyor will get it wrong… It’s an implementation detail rather than an argument against LVT.

  2. Mark Wadsworth on

    Yes, the tax base and the tax rate are two different things.

    I’m a tax advisor and we spend a lot of time arguing about the base (quite how much the taxable profits of a business in a year are, for example) but no time arguing about the rate. if corporation tax is 20% for a small business, then it is 20%, full stop.

    Therefore, with LVT it is obviously better to under-assess the base and to have a high rate (anything up to 100%).

    i.e. if the rental value of a site is “about £10,000” then it is better to assess it at £8,000 and charge a 100% rate than it is to assess it more accurately at £10,000 (possibly an over-assessment) and charge an 80% rate for the same revenue.

    I’ve covered all this and mentioned this and explained it here.

    PS, you obviously haven’t followed my link. Professional surveyors are only required at the margins in very unusual cases or appeals, 99% of sites can be assessed on the basis of average actual local selling prices and rents.

    So all similar 3-bed semi detached houses in the same area get assessed at the same rate. It’s not 100% but it’s accurate enough, that minimises appeals – is a house a 3-bed semi or not? Yes or no? it’s hardly a controversial topic.

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