LVT: Land Value Tax - answers to questions and objections

Please contact us if you have a question which is not answered here or on the LVT introduction page.

Please read Thomas Piketty's book "Capital in the twenty first century" for details of increasing income and wealth inequality.

Questions answered on this page

 

Who supports LVT?

LVT has support across the political spectrum: Conservative, Labour, Liberal Democrats, Greens, UKIP.

Obviously, these groups have different opinions about how the tax should be spent - but that's politics!

  Winston Churchill said, when introducing an LVT bill in 1909:
"Those who own the land contribute nothing, as land owners, and yet the value of their land is increased. The land owner provides no service to the community and nothing to the process by which he is made richer."

Is this an additional tax?

No.

LVT will replace other taxes - certainly it will replace the grossly unfair Council Tax and also National Non Domestic Rates ("Business Rates").

  It could replace other taxes - but that's where the different political parties have different views. Some would like to see it replace Stamp Duty, part of Income Tax, Inheritance Tax and VAT. Others are more cautious and would like to go one step at a time.

What is the "value" of land?

"Value" is what a buyer will pay and a seller will accept for something.

The value of land depends on two things:

  • What it can be used for: agriculture, housing, industry, offices etc.

    This is controlled by the planning process.

  • Where it is: "Location, Location, Location."

    For example, a plot of land may have permission for a three bedroom detached house.

  The actual cost of building the house (materials and labour) is roughly the same no matter what part of the country the plot is in. (Currently it is about 1,000 per square metre.)

However, the location of the plot will make a huge difference. A plot in a suburb of Derby would be worth far less than one in Kensington & Chelsea - simply because the price that can be charged for the final house will be vastly more in Kensington & Chelsea.


How do you measure the value of land?

For new build houses or commercial premises we know from the Land Registry what the developer paid for the land.

For existing houses or commercial premises it 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?"

The value of woodland is its market value minus the value of the tree crop on it.

  The value of other land, including agricultural land, it is how much it would sell for.

Measuring the value of land is technically straightforward. In Denmark, which uses LVT, the process is so reliable that the number of appeals against valuations is less than 0.015%.

See the resources page for more documents which describe valuation - including dealing with "special" cases like listing buildings.


Why tax land?

A number of reasons:
  • You can't escape a land tax because you can't move it or hide it in a tax haven!

    With the help of highly creative and highly paid tax advisors, you can evade (illegal) or avoid (dubious) almost all other taxes.

  • It is a finite resource - "they're not making it any more."
  • It is a resource we share - it's "ours" - no one does any work to create land - it's just there.

    We don't object to people owning (actually, "holding") land. We do feel that a proportion of the value generated by that land should be shared by all of us via a fair Land Value Tax.

  • It reduces "land banking".

    Developers hoard land until they can get the maximum price for houses they build.

    The LVT rate changes when the value of land changes. So, increased LVT becomes payable the moment a site gains value through zoning and planning permission. This encourages developers to get on and do the work they have proposed.

  • It will help to regenerate the regions.

    Business Rates are fairly similar throughout the country but under LVT business premises in the South East will attract very high levels of LVT while those in the regions will have much lower LVT.

    This, along with the lower cost of housing and the lower cost of domestic LVT for staff, will encourage businesses to relocate outside the South East.

    (Moving parliament to somewhere central in the country would also help a lot - but that's another story!)

  • It helps to stabilise house prices.

    Taxing land helps to keep prices stable, reduce differences between regions and reduce the tendency for housing price bubbles.

    The LVT on land with planning permission encourages developers to get on and build - thus increasing the housing supply, thus helping to hold prices down.

    Tighter control on lending to affordable levels (unlike before the 2007/8 crash) will also stabilise the market.

    Any artificial attempt to encourage house buying ("help to buy") will destabilise the market and encourage price bubbles.

 
  • It encourages productive investment and reduces unemployment.

    At the moment it makes sense to invest wealth in land and property because:

    • Land is a "safe haven" - like gold.
    • The return on "buy to let" property is excellent in terms of capital growth and rents.
    • The following are free from inheritance tax (from HMRC web site):
      • agricultural land or pasture
      • farmhouses, cottages or buildings that are used for agricultural purposes and are proportionate in size to the nature and size of the farming activity
      • woodland and buildings used for intensive rearing of livestock or fish
      • growing crops transferred with the land
      • stud farms that are breeding and rearing horses, and the land that the horses graze on
      • short-rotation coppice - trees that are planted and harvested at least every ten years
      • land that is actively not being farmed to help preserve the countryside and habitat for wild animals and birds under the Habitat Scheme
      • the value of land where the value includes the benefit of a milk quota
      • some agricultural shares and securities

      Interesting: landed estates (associated with the wealthy) and "stud farms" (associated with "the sport of kings") are free of inheritance tax. It almost makes you wonder who was responsible for the creation of our tax system.

    LVT will discourage investment in land and property and encourage investment in things like manufacturing and R&D which employ people and generate real wealth.


What about the buildings on the land?

LVT does not tax buildings, extensions or improvements.

Obviously, if you add an extension to your property you hope the overall market value will go up. At the same time, the building work has cost you money.

  The property will be revalued after the work is complete and the same question will be asked:

"if there were no buildings on this site how much is the land worth with planning permission to build those buildings?"


Why is Council Tax unfair?

A band D house in Westminster is charged 676.74 per year.

A band D house in South Derbyshire is charged 1487.63 per year.

Why is someone in South Derbyshire paying 220% more than someone in Westminster for a house in the same tax band? The same applies to houses in all Council Tax bands.

 

Someone in a 20 million pound house in London is paying less than someone in a 150,000 house in Derbyshire.

Is this fair? (Figures for 2014.)


Does land change value?

Yes.

A change of land use (through the planning process) will change the value of the land and may change the value of surrounding land.

When the Jubilee Line was built in London the value of houses close to it rose by almost 200,000 on average - because it made travel easier into London.

  This was a windfall benefit to owners through no effort they had made. The value of the land had increased - and so would the LVT.

The building of an incinerator in a suburban area may reduce the value of houses close by - and this will be reflected in a reduction of LVT.


What is the effect of planning permission?

An acre of good agricultural land on the outskirts of Derby may be worth up to 9,000 per acre.

Get planning permission to build an estate of "executive four bedroom houses" on the same acre and the value of the land sky-rockets!

Where did that extra value come from?

Well it certainly did not come from any work done by the landowner!

A potential developer will purchase an "option to buy" from the landowner and will then invest time, money and effort in drawing up plans and applying for planning permission.

  From the outset the developer knows how many houses, of what type, will be built on the site - and he will have a very accurate estimate of what he will be able to charge for each one. He knows how much it will cost to put in the infrastructure (roads, paths, sewers, services etc.), he knows how much it will cost to build each house, and he knows how much profit he wants to make it worthwhile.

Given these numbers, he knows how much the land is worth so, if he gets planning permission, the developer will take up the option and buy the land.


What is the effect of "zoning"?

While Planning Permission is the major factor in increasing the value of land, zoning has a significant impact.

Each Local Authority District has to produce a Development Plan - part of which defines those areas ("zones") which may be used for different things: agriculture, industry, homes etc.

The moment the plan is published people will have an eye on what has changed. An agricultural area that is now zoned for potential homes will find prices rise in anticipation that, sometime in the future, planning permission may be granted for homes to be built.

Of course, there is no guarantee that a developer will want to buy the land and build the homes - but the potential is enough to increase land prices in the zone.

The huge impact that zoning and planning permission have on land values, and the massive windfall income that will be generated for landowners, can lead to undue pressure on councillors and local authority officers.

The consultation process before the Development Plan is accepted, and before planning permission is granted, is the one chance that citizens have to ensure that everything is done in a transparent manner rather than as a result of a chat in the golf club or over a drink at a local businessmen's meeting.

An example

The example opposite, dated 21st, June, 2014, is from the UK Land and Farms web site which is a useful source of prices for agricultural land.

The example show the effect of zoning - land worth perhaps 7,000 and acre for farming has leapt to 100,000 because it has received change of use for industry.

"15 acres of land at xxxx, xxxx, xxxx, Bedfordshire. Sold for 1,500,000 (100,000 per acre.)

  • 15 acres allocated for development for B1 & B2 employment use
  • The Bedford Borough draft Allocations and Designations document is due for adoption later this year. The draft allocates approximately 15 acres for development for employment use, as an extension of the xxxx Industrial Estate.
 
  • Currently arable, pasture & woodland
  • The land is currently let on a Farm Business Tenancy."

What did the landowner do to generate a windfall of 1,395,00? Nothing.

Who generated the increase in value? We did - by deciding that the land would be suitable for commercial use. It was a decision by us as a society yet a land owner who did nothing is the one to benefit.

No doubt he/she is consulting his/her tax advisor to minimise Capital Gains Tax and to shift the cash into a safe haven - maybe even a tax haven?

A bit of careful "tax planning" prior to the sale would have transferred the ownership into a family trust (and claimed Entrepreneur's Relief) or into a company registered in a tax haven so capital gains would have been zero. "Tax planning" in this area is a little murky.

We don't know - and we are not suggesting any sort of dodgy activity by the owner - but LVT would have made it a lot fairer and a lot more transparent.


Who will gain and who will lose?

That depends on which taxes it replaces - and that is a political decision.

If it is used to replace Council Tax alone:

  • Those whose homes are on lower value land will gain.
  • Those on higher value land will lose.
  • Those in central London will pay more than those in Derby.
 
  • Agricultural land makes up a very small proportion of land value in the UK - because land used for housing and commerce is much more valuable. However, agricultural land has not been taxed before so rural landowners will pay a tax on their land for the first time.

If it is used to replace other taxes: Business Rates, part of Income Tax, National Insurance etc. those previously paying these taxes will gain substantially.


What would be the LVT rate?

The percentage LVT charged will be the same everywhere in the country and will depend on which taxes it replaces - and that is a political decision.

If LVT is used only to replace Council Tax and Business Rates then the percentage tax on Land Value will be much lower than if it is used to replace a wider range of taxes including part of Income Tax, National Insurance, VAT, Capital Gains Tax, Stamp Duty, Inheritance Tax etc.

  LVT could have a common rate for housing, business and agriculture, or it could have different rates for each. (See here.) At the moment the rate for NNDR is considerably higher than the rate for Council Tax.

LVT is the fairest of all taxes, and impossible to avoid (we can see the land and it can't be shifted offshore!) and there needs to be an open discussion about how the revenue it generates is used.


How do I find the LVT value for my property?

When LVT is introduced in the UK, as it has been in other parts of the world, land will be valued for LVT. We already have a similar mechanism for doing this for Non-Domestic Rating ("Business Rates") - the Valuation Office Agency.

The technical aspects of valuing land have been studied in great detail over many decades and you can find more details on our resources page.

The value of the land depends on where it is and what may be built on it.

  Remember, the question to be asked is: "if there were no buildings on this site how much is the land worth with planning permission to build those buildings?"

The responsibility for paying LVT always rests with the land owner. Whether or not all or part of the LVT gets passed on to tenants is up to market forces and negotiation between the landowner and the tenants.


Will I be able to see the LVT value of land?

Of course.

This is the second decade of the 21st Century - most of us are on-line and most of us are familiar with things like Google maps.

The national land value map will be a public document available on-line for all to see - free of charge.

  Thinking of moving house and want to check the LVT value of a possible property? Go on-line, a few clicks on the map and there it is.

That's another reason why LVT is a fair tax - it's simple and transparent.


What about social housing?

The principle of LVT is that the owner pays.

In the case of Local Authority housing the Local Authority will pay the LVT which it may recover, in whole or part, from tenants.

  We do have the strange case at the moment where one part of government, a Local Authority, collects rents and another part of Government, the Department of Work and Pensions, pays housing benefit to pay those rents.

How would LVT be implemented?

LVT will require two years to plan, two years for legislation and two years for practical implementation (valuations etc.)

Initially LVT will replace Council Tax (CT) and National Non-Domestic Rates (NNDR - "Business Rates")

It is proposed to roll-out LVT over 10 years. CT and NNDR would decrease by 10% each year and LVT would increase by 10% each year.

The LVT on land currently not subject to CT or NNDR would also be rolled out by 10% per year over 10 years.

  In the first year 83% of households across England would receive reduced bills and only 0.88% of households would receive increases of over 10%.

The six years of preparation and 10 years of roll-out will ensure that people have ample opportunity to plan their financial affairs knowing that LVT is being implemented.

It may be that some people will choose to down-size or relocate during this time.


What if someone can't afford to pay?

People will have six years to prepare for the arrival of LVT and it will not be fully implemented for another 10 years. People can plan accordingly.

There are a number of choices for someone living in a high LVT property but without the income to pay - someone who is "capital rich but cash poor".

 
  • Relocate to a smaller property or a lower value area.
  • Apply to have all or part of LVT liability deferred until the property is next sold or changes hands. The outstanding LVT, with interest, becomes a charge against the property.

What if the owner can't be identified?

LVT is levied on the owner of land, not on a tenant, and the ownership of most land is registered with the Land Registry.

LVT will take time to plan and roll-out. Owners will have a number of years to register before LVT starts to be collected.

There are two options if owners have still not registered land:

 
  • There will almost certainly be tenants on the land and the person/company collecting the rent will be billed for LVT.
  • Legislation will be passed to allow Local Councils to sell the land, deduct any LVT due and hold the proceeds, after deduction of an annual management fee, to be later claimed by the owner.

Who will collect LVT?

The current system is quite complex. Local Councils collect Council Tax (CT) and National Non Domestic Rates NNDR). Councils keep only a portion of NNDR, the rest goes to national government.

Most public services are delivered locally but funded by a mixture of local and national taxes - education is a classic example.

The proposal is to tidy this up in the following way:

  • LVT will be collected nationally.

    This will be a major saving since it removes the duplication of collection services in all councils throughout the country.

  • Local Councils have legal obligations to provide certain services.

    Each year they will submit a budget to cover these services.

    Once agreed, councils will receive their funds from the nationally collected LVT.

 
  • Local Councils also provide discretionary services that are not legal requirements.

    For example, they may open a sports centre or take over an area of land to provide more green space.

  • Councils will submit a budget for discretionary spending to local LVT payers via a secure on-line vote where each item of discretionary spending is listed and voters can agree or disagree with each one.
  • Those items of discretionary spending agreed by a simple majority of voters will be covered by a supplementary local LVT levy which will be collected nationally along with the main LVT.

    Councils will receive this along with their main LVT funds.


What about uncollected LVT?

There will always be bad payers.

Late payment will be subject to interest charges of 2% over the local authority cost of borrowing.

Failure to pay within 6 months will lead to a charge being placed on the property to cover the outstanding LVT and interest. The charge will appear on the Land Registry for the property.

  The owner may clear the charge by paying the outstanding LVT and interest at any time.

Oustanding charges will be paid the next time the property changes hands. It will come from the proceeds of a sale or from the estate of someone who dies.


Will it lead to uncontrolled development?

No.

LVT does not change the planning process. Local councils still have to produce a Local Plan - previously called a Local Development Framework..

The Local Plan is subject to public consultation and to approval by elected councillors. It is available for anyone to see at Council offices and on-line.

The plan divides the local area into zones - for example: agriculture, housing, industry etc.

Zoning will affect land value - a landowner whose farm is in a zone marked for possible housing will find the value of his land has increased - he certainly won't be willing to sell it at agricultural prices! The value for LVT will reflect this change.

Planning permission will further increase the value for LVT.

  Nothing can be zoned and nothing can be built without public consultation and a democratic decision.

Developers sometimes hoard land - they purchase it from landowners, do nothing with it and pay no tax on it. They release the land, and apply for planning permission, when they feel they can make the maximum profit.

LVT will encourage developers to start their developments as soon as possible because they will be paying LVT in addition to interest on the money they borrowed to purchase the land.

LVT will release land for development - but that land has already been zoned for development in the Local Plan.

Nothing can be built without planning permission.


How does it affect listed buildings?

Owners of listed buildings are not free to do with them as they wish - they require permission from the local planning department before they can make any external changes. In the case of Grade 1 listed buildings they require permission to make any internal changes.

Maintaining listed buildings can be very expensive because of the care that has to be taken, the materials used, the skills required and the constraints placed on the work by local Conservation Officers or by English Heritage.

  The owner cannot maximise the use of the land by demolishing the building and applying for planning permission to build a housing estate.

These constraints will be reflected in the value of the land for LVT - a listed building will have a lower value for LVT than a non-listed one and the exact value will be assessed on a case-by-case basis.


What about property with a large garden?

The LVT value of a site is the value of the land: "if there were no buildings on this site how much is the land worth with planning permission to build those buildings?"

The market value of the property will reflect everything about the site: the building on it, the area it is in, the views it has, the size and quality of the garden, the number of outbuildings etc.

  A property with a large garden - a country house with several acres of park land and gardens - will probably have a higher market value (and higher land value) than a similar house, in a similar area, with a smaller garden.

The LVT value calculation remains the same - no matter how large or small the garden.


What about houses built in gardens?

This is very simple.

Infilling is very common in many cities and suburbs - owners take advantage of large gardens and apply for planning permission to build an new house.

 

If planning permission is granted:

  • land associated with the new building will have its own LVT value.
  • the remaining land will have its LVT value adjusted to reflect any fall in value as a result of the loss of land.

How much land is there and what is it worth?

Please see the spreadsheet at the bottom of the main LVT page.


What do different taxes generate at present?

Please see the spreadsheet at the bottom of the main LVT page.

Replacing taxes other than Council Tax and National Non Domestic Rates

The task is to see what would be reasonable for LVT and which other taxes it could replace.

After all, if we could do away with some other taxes, as well as Council Tax and National Non-Domestic Rates, it might be worth accepting a higher Land Value Tax.


How much, as a country, do we spend each year?

The table shows figures for England.

In 2013 total UK expenditure was 673 billion.

Total spending for England was 458 billion.

England represents 68% of total spending.

In the table opposite (listed in value order for 2012-2013):

  • The UK value comes from government figures.
  • The England value is the UK value multiplied by 0.68.
 
Area of
expenditure
Expenditure
UK
billions
Expenditure
England
billions
Pensions139.194.6
Health care124.484.6
Welfare116.679.3
Education87.359.4
Other spending *54.236.9
Interest47.232.1
Defence42.228.7
Protection31.521.4
Transport17.311.8
General government13.89.4
TOTAL673.6458.2

* we don't know what this includes.

 

 
Background to tax reform

A tax on land or a tax on rents?

LVT: Land Value Tax - introduction

FTT: Financial Transaction Tax

PWT: Personal Wealth Tax

RUT: Road Use Tax

Citizen's Income

A sample proposal

Media reform

FAQ about LVT

FAQ about Citizen's Income

How to avoid taxes

Trusts

Tax havens

Company avoidance

Tax advisors

Voter alienation

Young people

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