Full of useful statistics about SDLT, for example how just TWO boroughs in London pay 15% of ALL the UK’s SDLT — £1 billion out of the total of £9 billon. In a long section of Options for Reform, they finally bite the bullet: Why not convert the huge one-off SDLT to a small annual Land Value Tax? Here’s what they say:
Option 5: Introduce a land value tax
Another potential option for SDLT reform would be to abolish SDLT, council tax and business rates and replace all three with a land value tax (LVT). This would be a tax payable on the value of the land rather than the valuation of property on that land as is the case at present.
At present, the different effective rates of tax in council tax and business rates as well as the differentiation in stamp duty means the tax system treats residential and non-residential properties differently. The LVT would be payable on all types of land, regardless of its use, and could therefore remove any preferential activity towards a particular land use. Effectively, this would create an equal playing field among the different types of land uses, i.e. residential vs commercial land and the various types of businesses.
The LVT would also cover undeveloped land which currently is not taxed to the same extent as developed land. This could then be beneficial in terms of equity, efficiency and environmental factors. For instance, taxing undeveloped land along with commercial (business rates) and residential (council tax) land ensures that all land users are contributing their share to local finances. Removing the disincentive to improve undeveloped land caused by the various tax relief options currently available would also lead to efficiency improvements; an undeveloped land tax raises the holding (and opportunity) cost of the land meaning it may be more profitable to change its economic use. Consequently, the added supply of land available to develop may reduce pressures to build on green and public spaces, thus having a positive environmental impact. Bringing more land into the property tax system also has the potential to increase the amount of tax raised, all other things being equal.
A LVT, assuming valuations were timely, could also represent an efficient and effective way of capturing the gains in land value resulting from infrastructure investment. Many investments by local authorities, the GLA or central government can help increase land values. At the moment it can be argued that the gains from these investments are not effectively captured by the public sector. A LVT could help alleviate this situation.
Previous LVT studies imply a tax rate of between 0.79 per cent and 4 per cent would be most appropriatebut how this might affect total tax revenue is uncertain. That said, LVT in London would likely change the incidence of property tax between commercial and residential property (particularly at higher values of property). Alongside this, there are further practical considerations that need to be made in terms of a LVT, such as:
- how will land values be assessed;
- the frequency of revaluations;
- who would set the tax rate (central or local government); and
- how will the tax revenue be distributed among the various levels of government.