TP20. Land Value Taxation and the Home-owner

How a different basis of taxation would affect the ordinary householder,  

 

 

Very briefly, Land Value Taxation (LVT) means that the value of all privately-owner land in the country would first be assessed, and then a tax would be levied, based on that valuation. By “land” we mean the site alone; we do not include any buildings, crops or other “improvements” which have been put on the “land” by human activity. As the revenue from LVT increased, other taxes, such as Income Tax and VAT, would be reduced.

 How does this affect the homeowner? What we call a house, or a flat, consists of two entirely different things. There is the building, which was made by somebody from whom the homeowner acquired it, or by one of that person’s predecessors. There is also the site – the “land” – on which the building rests, and which often includes a garden. The “land” and the building both have a value. But while the value of the building derives from the effort of the owner or his predecessors, the value of the “land” does not. It may derive from some feature of nature – a good view, for example. Or it may derive from activities of the surrounding community. There are, for example, good communications to local schools, parks and shops, or to the place of the owner’s employment,

 On the face of it, the homeowner will get some direct advantages from LVT – his other taxes will be reduced – while he also incurs the disadvantage of being required to pay the new tax, which is counterbalanced by reductions in other kinds of taxation. How will the advantages and disadvantages work out? Here are a few questions often asked.

1. Will homeowners be robbed of the land beneath their houses with LVT?

No. The homeowner will still have the same rights as before over both the site and the building on it.

2. Will poor householders be forced out of their homes by LVT?  

Far from it. Poor people usually live in areas with few amenities, and often in run-down areas. In those places land values are low, and LVT will be low – while, of course, they will save by a reduction in other taxes.

3. Will people living on moderate incomes in places where the land has risen in value since they acquired their houses, find themselves unable to afford the LVT?  

There is no simple “yes” or “no” answer. Changes in land values occur whatever the tax system, and from this some people will gain and others lose. Under LVT, people will weigh up advantages like a convenient transport system, or good schools and a nearby park against high LVT, in exactly the same way as at present they weigh up such advantages against high rents or house sale prices and high Council Tax when deciding where to live. In current economic conditions, only landowners selling or letting at higher prices benefit from the raised land values, enjoying wealth which they have done nothing to create. The difference that LVT will make is that the whole community will benefit from the increased amount which will be collected when land values rise.

4. Will people receive adequate warning of the arrival of LVT?

Yes. Introduction of LVT will require a change in the law. Before this can happen, the principle of LVT will have to be explained and discussed, until a lot of people are convinced that it is right. This will take time. Even after the legislation has gone through Parliament, it will take time to value all the nation’s land. Then LVT will be gradually introduced, and increased in stages as people recognise the benefits that it is bringing them. Meanwhile, of course, other taxes will be reduced. The whole process will take a long time, which will give everybody plenty of opportunity to make necessary adjustments in their lives and finances.

5. How will pensioners’ housing be affected?

Today, many people seek to obtain the means to live comfortably in old age by selling their houses at a profit, and moving into cheaper places on retirement. But the profit has come, not from a rise in value of the building (which deteriorates over time, in real terms), but from a rise in the value of the underlying land. Land prices, however, are not a reliable investment. In times of recession, house prices slump. Long before LVT is fully implemented, people will realize that they cannot expect future rises in house prices to fund their support in old age, and they will have switched to other ways of prearing for retirement. As LVT takes effect, salaries and pensions will be given increased purchasing power by increased production and the lowering of taxes on goods and services. People will therefore find themselves in a better position to save for old age.

6. What will be done for “hard cases”?

With LVT, as with any kind of change in taxation, it is possible that some people will be unintentionally disadvantaged, particularly in the transition period. Parliament must recognise this by setting up temporary systems of exemption, relief or deferment, to deal with hard cases. But it should be recognised that the large majority of people will benefit greatly from LVT.

7. What will happen to Council Tax?

Council Tax is a prime example of a tax which nobody ever thought was “right”, but with which we have been stuck for years because nobody has had the courage to change it. Council Tax came into existence because the previous “Community Charge” – generally known as the Poll Tax – not only proved itself a bad and unfair tax, but was in many places uncollectable. Something had to be done in a hurry to replace it, and Council Tax was the result of an uneasy compromise. The original idea was that revaluation for Council Tax would be carried out at fairly frequent intervals, but we are still stuck with an obsolete valuation made nearly twenty years ago. LVT can be applied for local government purposes (where it is called Site Value Rating, or SVR), and would be a much better local tax.

8. Why is Land Value Taxation necessary?

This is discussed more fully in several other Topic Papers in this series. To sum up the main points, LVT is needed to ensure best use of natural resourcves, in the interests of everybody. People currently out of work need the employment opportunities which will naturally arise when productive land is brought into use. Run-down areas need the tax advantage which LVT will give them, in order to stimulate economic regeneration. More prosperous areas, which suffer from increasing population pressure on limited space, will be relieved by regeneration elsewhere. The environment will benefit when “brownfield” land which is at present held out of use for speculative reasons is brought into use, thus reducing the pressure for encroaching on “green” areas. Would-be homebuyers, including the “key” workers who are at present priced out of the housing market, will have a better chance of acquiring good homes of their own.

In other Topic Papers of this series, we explain what is meant by “Land Value Taxation” (LVT), and various advantages which would flow from its introduction. In the present Topic Paper we consider how LVT would affect homeowners.

 

FOR FURTHER INFORMATION PLEASE CONTACT:
Land Value Taxation Campaign, at http://www.landvaluetax.org

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4 thoughts on “TP20. Land Value Taxation and the Home-owner

  1. Louis Lavery

    I’m trying to find cases where LVT is not such a good idea. This may be one such case (like 3 above). Say you live your life in a moderate LVT area but later in life it goes up market and so LVT increases but you are unable to afford it then you’re forced to move out of your life long home – that’s not very nice, no matter the price you can sell at, is it?

    Reply
    1. landisfree

      Well, first of all, you are paying no other taxes, so you should be able to afford the extra. Secondly the assessment to LVT measures potential in a given planning situation, so going up-market changes. The value of land becomes zero. Think of that! So all you need to buy is the house itself. So you don’t have that huge mortgage. Life would be a lot different to be sure.

      Reply
      1. Louis Lavery

        I’ve posted in another thread (tax that cannot be passed on), as you know, but I’ll stick to this one.

        “Well, first of all, you are paying no other taxes, so you should be able to afford the extra.”

        Not really. I’m assuming (1) I’ve live in the best area I can afford, (2) I’m now a pensioner, (3) land values have risen (for whatever reason), and (4) I wish to stay here but cannot afford the higher LVT. People do like to stay in areas where they are familiar with the neighbours and with the area itself (I know a case of a chap who’s gone near blind in old age and doesn’t want to move as he knows how to get about safely where he lives now).

        One solution might be to exempt pensioners who’ve lived a long time in the area, maybe putting a charge against the property to be collected when it’s sold (but that could get messy).

        Another solution might be to buy insurance against such rises. I guess they would not be common.

        As I say in the other thread, all I’m trying to do is find cases where LVT works against the occupier’s interests/wishes. I think it’s always better to recognise, and admit, your weaknesses.

        ===========================
        “Secondly the assessment to LVT measures potential in a given planning situation, so going up-market changes.The value of land becomes zero.”

        Sorry, but I don’t follow this at all. Can you please clarify?

        Reply
        1. landisfree

          Yes, many think that rolling up the tax until death occurs would deal with this problem. But also remember that many pensioners do pay tax if their total income is more than the personal allowance, which is only £10,000 or so.
          Your other point, there is a relationship between annual and capital values. If I promise to pay you £100 for twenty years, how much will you pay me now? Generally speaking a 5% interest rate might express the relationship, so that 20 times the annual amount gives a starting figure for the capital amount. Then you start to adjust for risk and inflation!
          But the point is that if you remove the annual amount, there is no capital amount. So this is why those in favour of LVT say that an annual assessment based on location value removes the high price of land and makes speculation in land obsolete.

          Reply

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