Land Value Tax

Land Value Tax (LVT) is method of raising public revenue by means of an annual charge on the value of land. The idea is that it is one of the most fundamentally fair ways of raising taxes as land is a common resource, and therefore those who benefit by owning land should compensate the rest of society for having that privilege. The introduction of LVT would facilitate a significant reduction, and in some cases elimination, of other current forms of taxation. As well as the reasons given above, supporters of LVT believe it is also a good system of raising revenue for the following reasons:

1. It will lead to a stronger economy as it will encourage under-utilized land (particularly unused industrial land – or brownfield sites) to be brought into production, and will facilitate a reduction in tax on wealth-creating activities (such as income tax).

2. It will encourage industry in economically deprived areas where land values are lower, counteracting the negative effects of poorer infrastructure away from existing centres of commerce.

3. It will reduce Urban Sprawl as LVT deters speculative land holding, and dilapidated inner-city areas will be returned to good use, reducing the pressure for building on greenfield sites.

4. It is a very simple tax to understand, calculate and collect.

5. Tax Avoidance/Evasion will be impossible as it is not possible to hide land.

6. It will reduce house price booms and crashes as the annual tax that is collected will mean it will no longer be so attractive to speculate on the value of property/land prices.

7. If someone makes money through owning land in an area where land values have increased, they will repay some of their gain to the economy via increased tax.

It should be noted that the value of the land would include any planning permission that had been granted (so greenfield sites would have low tax as their commercial potential is minimal). It should also be noted that the value calculated would be the value of the land only, not the buildings on it.

Though simple to run, moving from our current system to LVT would be very complex, and would involve every plot of land in the country being valued for LVT purposes. Concerns have also been expressed about how property owners with very little cash (e.g. pensioners) would be able to afford it. The exact rate at which LVT would be levied would have to be decided, though figures around 3% annually have been mooted. If anyone is interested in reading more about this they should visit http://www.landvaluetax.org.

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2 thoughts on “Land Value Tax

  1. We don’t live in a free market capitalist economy. We live in a neo-feudal one. Capital formation benefits everyone. Trickle down. The problem is, and has always been, those who own land are able to capture the productive surplus generated by economic activity. Trickle up.

    Banks and landlords both syphon off around £40bn each year in land rents. The top 1% of households own 50% of land by value.

    Given that we could replace all taxes on work and enterprise with land rents, this means the top 1% would be paying 50% of all domestic revenues. So an extra £100bn per year.

    The value of land is not created or sustained merely by the act of possessing it. It comes purely for demand for a scarce natural resource. It’s value is commonly created. So, only the value we create together should, and could pay for the services we share together.

    Let’s put some figures on this. As a starting point, any charge against property at 3.5% or below at today’s selling prices is a defacto LVT. This would raise an extra £200bn per year. Enough to scrap NIC’s, VAT, Corp Tax, IHT, SDLT, Council Tax and the TV licence. We would be left with a flat 20% on all income.

    For an average UK household, such a change would put an extra £11,000 pa in their pocket. We could expect house prices to fall by 50%, so for the average first time buyer, they would save £7000 in interest payments.

    Put together, housing affordability as a ratio of discretionary income rises four fold.

    That ends the “housing crisis” and the “costs of living crisis”. We would also expect to see one million empty homes and 25 million empty bedrooms allocated more efficiently. Even if only half were put to use, we would need to build a single new home for over 30 years to meet even the highest estimated population increases.

    And as LVT is the only morally justifiable way of paying for State services, it is also the most economically efficient. Economists who have estimated deadweight costs from taxation and capitalised rents put the figure at 48% GDP.

    So, an LVT would expand our economy by that amount.

    Moving to an LVT system is not at all complex. We do not value each parcel of land. We are only interested in relative rental values, from which we can deduce the rental value of land. Easy and cheap. See here for more details.

    http://kaalvtn.blogspot.co.uk/p/valuations-and-potential-lvt-receipts.html

    What should be remembered, is that as discretionary income rises, rental values rise to absorb it. This means we could replace the final 20% income tax quite quickly.

  2. I completely agree with you that Location (aka Land) Value Tax is required as one of the key changes required to fix “our broken system”.

    Some of your readers may be interested to find a short 20-minute video, explaining some further reasons why land is so important, and how Land Value Tax is part of the answer, is available to view at http://www.economicjustice.co.uk.

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