Land Value Tax

For a tax to be accepted it must be:
  • Fair.
  • Simple - so it can be understood without a tax advisor.
  • Impossible to evade or avoid.
A small number of fair and simple taxes, which are impossible to avoid, is much better than the multiplicity of taxes we have at the moment which are unfair, highly complex and very easy to avoid (if you have enough money to get the right advice.)
"Only little people pay taxes." - Leona Helmsley, businesswoman.
A key factor in any new tax proposal, such as a land tax, is that it must be easy to explain to the mythical Man In The Pub (MITP).
A bad tax is one that takes more than five minutes to explain to the MITP.
A new tax must be exactly what it says on the tin!

Starting with the obvious

  • A field with cows is worth less than a field with houses.
    Land value depends on permitted usage.
  • A field with houses in Derby is worth less than a field with houses in Chelsea.
    Land value depends on location.

A tax on the value of land

PROS
  • The value of agricultural land is easy to understand - it's what someone is willing to pay for it.
  • The value of housing land is the value of the site without the buildings on it.
    Ask: "if there were no buildings on this site how much is the land worth with planning permission to build those buildings?"
  • If LVT was used only to replace Council Tax and National Non-Domestic Rates (NNDR) with a flat rate tax it would be set between 2% and 3% of Land Value.
    If it was decided that land used for business should pay more than land used for housing (as NNDR does at the moment) then LVT for houses would be under 2%.
    Selling the idea of a tax of between 2% and 3% is reasonable.
  • These ideas are easy to explain and understand.
CONS
  • There are no cons to a tax on the value of land.

A tax on the value of rents

PROS
  • The tax is based on the concept of an economic rent.
CONS
  • If the tax was used only to replace Council Tax and National Non-Domestic Rates (Business Rates) it would be set between 10% and 20% (or more) of Land Rental Value.
    Selling the idea of a tax of over 10% is quite difficult
  • How does one explain economic rent to the MITP?
    An economist might explain it simply as:
    "Economic rent is an excess payment made to or for a factor of production over and above the amount expected by its owner. Economic rent is the positive difference between the actual payment made for a factor of production (such as land, labour or capital) to its owner and the payment level expected by the owner, due to its exclusivity or scarcity. Economic rent arises due to market imperfections; it would not exist if markets were perfect, since competitive pressures would drive down prices. Economic rent should not be confused with the more commonly used "rent", which simply refers to a payment made for temporary use of an asset or property."
    The MITP would have been lost somewhere before the end of the first sentence.
    The trouble is, the MITP remembers economists as those who failed to spot the crash of 2007/8 and who believe in the inevitability of global economic market forces.
    The left-wing MITP recalls reading that they no longer cover Marxist economics on university economics courses.
  • Rent is not the same as "rent". Tenants pay "rent" so the assumption is that the tax will be based on this value - but this is not the case because "rent" is paid on the combination of land and buildings.
    We are left with the complexities above and general confusion when the same word, "rent", means more than one thing.
  • Home owners don't rent their homes - so the concept of rental value is new to them
  • We have to separate the portion of rent due to buildings from the portion due to land.
    This is more difficult than it seems because homes are not the same as factories - one does not write off the cost of building a home in the same way as the cost of building a factory.
    We would be forced to look at the on-going costs of the buildings (insurance, maintenance, repairs etc.) and deduct them from the overall rental value to give the portion of rent due to land.
    This is unnecessarily complex - and will create endless arguments and appeals - as well as lots of very annoyed people.
  • For all sorts of complicated reasons it is not always possible for a property owner to charge an economic rent
  • Agricultural land prices are rising dramatically because land is seen as a safe investment.
    Land is seen as a "status" investment by high earners wanting their "little shooting estate in the Cotswolds."
    The rental return on land is very low - so any tax on rents would not reflect the value of the land. Land would still be a good place to bury wealth.
  • These ideas are difficult to explain and understand - unless you are an economist or tax advisor. (Actually, economists have never been very good at explaining anything in a way that non-economists can understand.)
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