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 wonder if it’s a devolved power in Scotland. I can imagine it going down about as well as the poll tax did up here.

I think (correct me if I'm wrong) that @FunRequirement is assuming that the rate will be set so that the total amount of tax taken by the nation increases.

This is however not a result of a change in the way tax is collected.

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

Flats - I owuld imagane the freeholder would pass down the charge to the leasholders (individual flat owners) based on however the y caluclate the service change % at the moment.

House with big plot and planning permission - of course that should attract a higher value so higher tax than the small single house plot next door.

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.

We can all pick meaningless numbers of the air to illustrate out points. You use 2.5% to say it would be unaffordable. I would be very surprised if a figure as high as 2.5% ever got though. What about if it was 0.75%? Or what if it was graduated like stamp duty is now?

You can't say 'noooooo 2.5% would bankrupt everyone so this LTV idea can never work" when you don't even know what the % is.

I think different areas would have to have different percentages.
Like everything with every government we have ever had, it will cost you more money.
It is probably aimed more at the 100m mansions in London that pay 3k a year council tax. But at even 0.5% that would be 500k a year. I don't care if you're a billionaire, that would hurt

@serbska

"So you would be happy with a capital gains tax on your primary residence?"

no. not sure how you got that. I don't want to pay any more tax on my tiny flat. I had to bust a gut to buy it, had to pay the govt SDLT when I bought it...why on earth should I pay more tax on it, especially if I sell it, because property prices have spiralled way out of control, so wherever I was going would be reflecting that.

it's not my fault we have a hugely overinflated housing price issue, and I don't benefit from it in any way. No one benefits, as I say, unless they downsize - impossible in my case I'd hope - or move to a much much cheaper area.

I don't see how CGT on property sale for a single person in a 1 bed or studio would be remotely fair.

I also don't see how land tax would be remotely fair but as pp said, hopefully it will operate differently and be paid by freeholders in blocks of flats.

actually Alexa's post about multimillionaires

is this one of those conversations that doesn't really apply if you live in a small flat, don't have any other property, and earn the average or less than average wage?

Have I stumbled on a thread that's about people who have waaay more than I do? Perhaps I'm overworrying.

like on the brexit threads, someone said "move your savings out of the UK" and I was like....um, how much will that cost? Is that really necessary!

Land value taxes are MUCH better than purchase taxes on property.

They fall on the freeholder
They are almost impossible to avoid - land stays put
They affect new owners and inheritors equally

The sooner the UK brings one in, the better

serbska
We can all pick meaningless numbers of the air to illustrate out points. You use 2.5% to say it would be unaffordable. I would be very surprised if a figure as high as 2.5% ever got though. What about if it was 0.75%? Or what if it was graduated like stamp duty is now?

You can't say 'noooooo 2.5% would bankrupt everyone so this LTV idea can never work" when you don't even know what the % is

www.telegraph.co.uk/news/2017/05/29/tax-homes-treble-labour-plans-land-value-tax/

"...the land value tax proposals by the Labour Land Campaign (LLC) appeared in a draft document that is not LLC policy, and suggested an introductory rate of 0.85% of land value, only rising to 3% later"

Even if applied to 55% of the property, it's still much more than stamp duty now and would plan to get to 3%

Stamp duty on a 300k property right now is 5k, and you only pay that once.

LVT on a 300k property with it applied to 55% of its value, would be 4950 every year forever. (300,000 X .55 = Land value calculated at 165000. Multiply this by 3% annually and that is 4950. Divide that by 12 and you would be paying 412 pounds a month extra forever on LVT.)

don't want to pay any more tax on my tiny flat. I had to bust a gut to buy it, had to pay the govt SDLT when I bought it...why on earth should I pay more tax on it, especially if I sell it, because property prices have spiralled way out of control, so wherever I was going would be reflecting that.

Well if CGT was to be charged on PR obviously there would be rollover relief where when you buy another qualifying asset, in the way you already have for CGT. So whine you realised your unearned gain (on death, or downsizing) yes - their would be a GCT charge to pay.

I don;t think just because people 'bust their gut' to buy something it should be exempt from taxation.

Most very rich people in this country pay minimal tax because wealth isn't taxed as highly earnings. You would think the 'common man' would be on board at something that might address this inequality.

@FunRequirement that is an old newspaper piece and no one is actually proposing numbers, that I can see, at the moment.

Also the torygraph is always going to report negatively. Think who their target audience is?

The primary source where I read about the merits of LVT is the Economist - not exactly left wing.

CGT on primary homes does not seem to have hurt the USA too badly ....
Nor has LVT

It's the us style system of property taxes. It's a nightmare if you suddenlu become unemployed/ill/etc.

Leasehold and freehold is rare in Scotland so don’t see how it would work with flats here.

I'm not sure I understand the difference between LVT and Council Tax. Round these parts of the South East, the Council Tax is definitely more (2 bands higher) in our (generally considered more desirable) area than for an almost identical property (slightly larger) in the next parish over. Even from road to road, there is what was originally the same house as ours that's been almost doubled in size by extension and yet it is in a lower tax band than ours because the road is busy so the house prices are less.

@funrequirement

Just to check, are you just posting made-up numbers because you don't like the idea of LVT?

Using your assumptions, how would the total tax take compare with the total tax take under the current approach?

@serbska

I don't know what all this rollover relief stuff means so I may be misunderstanding

You say this will address inequality, I'm interested to know how.

As a lower earner, I just panic hearing the words "more tax". Wealth tax might apply on a fourth home, sure, but my understanding of LVT is just another tax on the home where I've already paid stamp duty. I thought we were talking about all homes?

Really sorry if I'm being thick. I'm overjoyed if they want to charge the Cadogan Estate more tax on their huge portfolio and increase the tax free earning level. But I thought they were talking about all homeowners paying a new tax?

Re CGT, Surely the simpler thing would be not to charge, rather than charge, do a rollover relief etc.

Why do you say "another tax?"

Unless the nation decides to increase the tax take (which has not been suggested) then it is "a different tax"

If the nation takes a billion pounds this year, in council tax and Stamp Duty, then it can take a billion pounds next year, in LVT.

The make-up will be different, because the calculation is different.

Unless you are a billionaire with a large estate, what makes you think you would be paying lots more?

As with all tax changes, there would be winners and losers. A LVT would mean that people who own higher valued properties pay more tax. In the end, if there was a land value tax, I think sellers would not be so keen accept estate agents' over-valuations or other sellers' valuations to list their houses at kite flying prices.

@ PigletJohn I am using 300k as an example property. I would say a pretty average property down south, and showing that LVT would be substantially more expensive than what is currently paid. These costs would be passed on through rents, and only very high earners would qualify for mortgages. I then used the rest of my "made up numbers" to show the maths behind the original proposal, 55% of property considered the land value and the tax charged at an intended annual rate of 3%

If you have evidence to show the maths differently, please let me know. I'm very curious as to how this could possibly work out cheaper than stamp duty.

@FunRequirement I don't think the intention would be to make it cheaper than stamp duty. I think the intention would be for the government to tap more of the vast housing wealth in the UK to rectify the tax shortfall for funding public services.

Unless you are a billionaire with a large estate, what makes you think you would be paying lots more?
PigletJohn I'm feeling thicker by the minute!! But if you've already got SDLT in the pot, as it were, and you don't move, you don't ever have to pay any more under the status quo. If you have to start paying LVT on the same house (even if it's after a grace period) it's more money. Am I being really stupidly simplistic here?
I don't think I'm the only person who's approaching pensionable age who'll feel a bit despondent. Most pensioners couldn't pay this type of tax, could they?

@DolorestheNewt Maybe you could do equity release to pay it?

@FunRequirement

"an intended annual rate of 3% "

Intended by whom?

The Daily Telegraph?

You didn't get figure from a Labour Party Manifesto, neither is it Labour Party Policy.

If "Council Tax" goes and LVT comes in, why are you calculating on the assumption that total tax take will increase?

This is some evil socialist shit. That is all!

@ AnalyticalChick I think it would be very tricky, the only way I could see it working is by not charging anything on properties valued below a certain amount and also taking income into account, but then it gets subjective. This tax would be charged indefinitely, so I think it would be a bit unfair to suddenly hit a pensioner (for example) with an extra 412 per month bill if they happened to live in a house valued at 300k. Even if that pensioner were to sell their property, what % of individuals would make enough money to qualify for the mortgage? Unless mortgages become unregulated or incomes rise significantly (I believe the current UK average salary is around 28k annually), I don't see how it works. The US can do LVT because people in the US generally make more money.