As our economy has still not rebounded to its pre-credit crunch glory, so many people are talking about what to do to breathe some life into the economy in general and the housing market in particular. One view is to adopt a land value tax (LVT). Could a land value tax be the answer?
There are many people who don’t like the idea of a land value tax – particularly and unsurprisingly, those people who have invested large amounts of the their income in large, expensive properties, often in London.
Some proponents of LVT would actually abolish all current taxes and replace them with an LVT.
What exactly would LVT be?
Essentially it is a tax that is linked to the value of land that a tax payer owned.
So if the champions of LVT had their way, a person who garnered a salary of £40,000 a year would stop paying around £7,000 in income tax, £1,000 to £2,000 in VAT, £1,600 council tax and any of the transaction charges that go to the tax offices. LVT (in the purist model) would mean an abolition of capital gains tax. Stamp duty would go the way of the dodo. Simply put, the tax payer would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.
What LVT would mean is that if you were to move out of the capital your tax bill could be a shadow of its former self. However, if you chose to live in a more expensive property in London then you would be looking at a much pricier tax bill.
The Pros of Land Value Tax
- You keep all of the salary you work for and there would be a 100% gain for every extra hour worked.
- If you refurbish your property, it has only limited effect on the value of the land, giving you every incentive to modernise and improve the property. In the current system, when we improve our property it increases the value of the property, that in turn increases council taxes – a system which does not incentivise property owners to undertake improvements.
- Land value tax is easy to assess, cheap to collect and impossible to evade. While the super rich can often evade current taxes with off-shore trusts and company ownership structures, with LVT they will have to pay tax
- You can decide how much tax you are willing to pay with LVT because you choose a house or a flat within that tax range.
- Some people feel that the post baby-boomer generation who have not been able to accumulate land and are forced to continue to rent due to the current unavailability of mortgages should not be further punished by high rents charged by baby-boomer landlords and then punished again by income taxes. It is argued that LVT instead of income taxes would relieve the pressure on this "lost" generation and allow them to get together enough money for a deposit.
What do you think? Is Land Value Tax fair? Is it the answer to our economic woes? Northfields Estates would like to know how you feel about this issue - let us know what you think by clicking the link to take our quick poll.