Replacement of Stamp Duty with Land Value Tax

[AnalyticalChick]

I was reading in Money Week that all the political parties see an ongoing annual Land Value Tax as the preferable alternative to Stamp Duty.. The change is likely go ahead within the next few years. Would MNers prefer to pay Stamp Duty on an initial property purchase, or an annual LVT on the value of their property?

I think most people will probably not pay much than at present, but people who own houses that are valued more highly will shoulder most of the burden. I can imagine London and the South East, and other highly valued areas will be hit the hardest.

@Alexalee Yes, they discussed removing the CGT relief on primary residences, too. Some of the experts thought it would also happen, but others thought it less likely than just a LVT.

Either of those start redressing the balance between the previous generations and the present ones so I see them as positive

@Alexalee It would be a massive philosophical change to introduce a kind of wealth tax in the UK, and I am in two minds about it. But I can see that it is a way of taxing the unearned wealth that homeowners have enjoyed over the last couple of decades, together with making property hoarding less attractive.

The vote the party's need to focus on are the under 40s now. If they are ignored by the conservatives again then I can see corbyn in number 10... And things will get a lot worse for anyone with any kind of assets.
Cons are the lesser of 2 evils in my opinion and they have to stop pandering to boomers and homeowners

Have they talked about Land Value Tax for flats, I wonder.

Also wonder if the freeholder would be liable rather than leaseholder.

RE "unearned wealth"

The fact that my flat has gone up in value doesn't mean any financial gain for me unless I sell up and move somewhere cheaper. I can't downsize as I'd be living in a shed.

Womaningreen... you only pay cgt when you sell and crystallize the gain. If you never sell you don't pay it

@Alexalee I agree. I sometimes think homeowners are their own worst enemies by being so supportive of house price inflation. They are only making the younger generation more resentful of them. And the younger generation's measures to correct the imbalance will ultimately be all the more extreme. If homeowners had not supported house price inflation so readily, it would not be an issue, and I don't think they would now be facing these consequences. It's really a case of be careful what you wish for.

Sorry, I mean how would land value tax work on blocks of flats, not CGT

I can't see CGT as fair on a homeowners either tbh

Overall wealth tax seems fairer, the ordinary Jane isn't benefitting from crazy house prices. I'm stuck in a small flat because the difference between a one bed or two bed is now astronomical and there's no way I could earn to meet that. Add in a kitchen separate from the lounge and it goes up again.

My social circle is average earners

We'd all like to see house prices go down. Some on here assuming that homeowners want them to go up? Not the case at all.

@Womaningreen True. The main wealth of the country is locked away in houses and cannot easily be accessed by the government for tax. But the government needs tax money every year to run public services. It wants to tax some of that huge and increasing amount of money that is locked away in property, otherwise it will not be able to fund those public services.

@Womaningreen I expect it will be people living in more expensive houses that will be hit the hardest, not someone like you.

I don't think LVT is a good concept. It unfairly penalizes poorer people because they would be forced to continously pay forever on a place they may have just barely paid off. I don't think state pensions are enough to pay for another large tax every month either. Right now stamp duty doesn't have to be paid by FTB up to a certain amount. LVT makes people vulnerable because whats to say a government doesn't get in and keep making incremental increases to obscene amounts. Like the whole frog in a pot story, it would be a lot harder to stop, whereas large increases in stamp duty are much more noticeable. Also LVT would make a lot of property unsellable, so if people lose their jobs they wont be able to sell their house (LVT would be too expensive for a lot of potential buyers) and the houses would go through foreclosure instead. So ultimately what would happen is the house prices would crash but the houses would still be too expensive for potential buyers who can't afford another large monthly payment for the foreseeable future. The houses will still be expensive, but more in a stealth way. The only ones who would gain anything from LVT is the government, but not the buyers and not the owners.

The lack of cgt on principal residences is ridiculous, it is by far the biggest form of unearned and untaxed wealth creation

Totally agree.

I would rather pay a bit more tax on my earnings tbh and boost central funding that way

No, we need to move to taxing wealth not just earnings.

I am a homeowner so this isn't from some kind of 'anti home owner' position. I strongly believe that we are perpetuating huge inequalities in or society between generations and between home owners/not owners and that we should tax people based on their resources which they hold/benefit from which include the value of their land/home as well as their employment income, interest on cash (ha!) and gains on shares and other investments.

The fact that my flat has gone up in value doesn't mean any financial gain for me unless I sell up and move somewhere cheaper. I can't downsize as I'd be living in a shed.

So you would be happy with a capital gains tax on your primary residence? Like on second homes, or on shares, or other investments where you pay tax on sale and realization of the gain (or roll it over into a qualifying purchase)? I would also be in favor of CGT on primary residence. Makes no sense to me that we don't take property gains on PR. Never has.

FunRequirement Bit of a catastrophising post there. Maybe an ongoing LVT would make people consider carefully how much land value they actually need to consume. I would be in favor of there being some kind of mechanism to roll over the tax as a charge against the property for low earners who are in property under a certain threshold of value .

I read land value tax as basically tax based on the value of your house/flat. Figures I have heard range from 0.75 to 3% per annum.

That would be ridiculous, with the average London price being 600k, the new tax would cost 4500-18000 per year instead of around 2000. On a 2m pound house you could be looking at 60000 a year. Those figures are unaffordable to almost everyone

@Alexalee I think it is meant to be a tax on the underlying value of the land, not the building that is built on the land. So if the value of the land has gone up, they would need to pay more tax annually.

How would that be implemented on a block of flats?
Or a house on a plot which has planning for an additional house.
They only possible way would be to have the tax based on the value of what sits on top of it

I would be in favor of there being some kind of mechanism to roll over the tax as a charge against the property for low earners who are in property under a certain threshold of value .
In the case of a lot of early pensioners or those at the tail end of a moderately-paid career (sticks up hand), if the tax is based on a %ge of the land or the house, they're in houses that will attract a tax that they can't possibly pay according to their income (particularly in London). They, too, would need a rollover mechanism so that the value can be extracted when the property changes hands - which would make it a kind of retrospective lump sum, like SDLT but due when you move rather than when you buy (and obviously linked to length of occupancy). Does that make sense? I'm always a bit out of my depth in these conversations.

For a block of flats, presumably each flat would pay a share of the land value of the whole block. For a house with pp for another house, it is an incentive to build and get that house sold asap. If land in an area has increased in value because of, say, a new school, more tax would be paid by the land owning beneficiaries of that school.

Links please?

I didn’t pay stamp duty for my flat as it was WAY under. I’d be annoyed if I then had to pay an equivalent should I move.

Serbska I'm just going off what high "property tax" (basically LVT) does in other Western areas in the globe. It brings down the overall price of the house, but the house is still too expensive because now buyers can't afford the taxes on it. With how sensitive mortgage affordability calculations are now, they most likely wouldn't even be approved on an average income. For example, lets say a house is 300,000 and the annual tax rate is 2.5%, that would be 7500 pounds for the year, another 625 per month. 625 is what a lot of people pay just in mortgage now, there's no way the average earner would be approved for the mortgage. The rents will soar because landlords are in the business of profit, so all it does is penalise the poor.

@Buggerbrexit I doubt you would pay very much more tax, if anything since you own a low valued property. It is people who own higher valued properties who will shoulder the most burden.

We have property tax in the US, it covers utility infrastructure, schools and some other things. Our community has paid for the utlitiy infra, thus ours is quite reasonable at 8k a year. It basically doubles what we’d pay in mortgage alone.

If we wanted to move to a new area a bit more bigger/expensive house, we’d probably have to find 20k a year. Every year.

Not a great proposition, depending on what they roll into it.

Bear in mind that the change in taxation does not of itself alter the total tax take.

If you are a multi-billionaire with an expensive town house and an expensive country estate, and you have arranged your affairs so your company doesn't pay UK Corporation Tax, and you don't pay UK Income Tax (for example, you are Lord Rothermere, proprietor of the Daily Mail) then it would hit you hard.

If you are a humble person with one modest home, you might save a bit, thanks to the rich chipping in to lighten your load.

You may or may not think this a good thing.