Burnahm Land Tax Replacing SDLT

[maureenponderosa]

https://www.standard.co.uk/news/politics/andy-burnham-tax-london-land-value-council-stamp-duty-b1286586.html

While I think this is overall a very sensible approach, and do think Stamp Duty is a tax that discourages market movement, I’m a bit worried about this.

We moved recently. Paid £30,000 in SDLT. It will be so galling to have to then pay a stamp duty replacement tax when we’ve already paid so much in stamp duty.

I wonder how this would be rolled out. Would it apply to all purchases after a certain date or to everyone whether they’ve already paid the tax or not.

Hoping it would be the former.

Any speculations?

Headline mentions London but we’re nowhere near. Very rural. No London salaries.

Surely it applies when you buy a new house and only then. Is it essentially like paying the stamp duty but in instalments? (Sorry not read the article)

i don’t understand it either. I would like to understand what’s the problem it’s trying to fix.
What’s the benefit of it and how is it supposed to help people?

One example is that it would encourage downsizing. For a retired couple who are living in a 4 bedroom home, mortgage paid off, why downsize if you have to pay a big lump of your equity to get something smaller?

I also suspect it could prevent continued mad house price increases. People won’t need to find tens of thousands of pounds to pay the stamp duty for a modest move from the house they’re selling.

Having said all of that, I really really hope it would only apply to new purchases! I’m going to hunt for examples of how a land tax has been introduced in other countries.

I wonder if it would be helpful/cheaper to owners of flats? For example of 25 flats sit on a smallish piece of land.

I hadn’t thought about flats. A London freeholder would presumably be on the hook to pay a substantial amount of LVT. I suppose this cost would be passed on to leaseholders in the form of an annual charge.

Can you give some examples with numbers as I also dont understand what would be different or what its trying to solve

If you have a 4 bed and you're downsizing to a 2 bed, surely you wouldnt pay a 'big lump' of your equity for the 2 bed because its much cheaper anyway and if theres no mortgage then the whole selling price of the 4 bed is the equity which in London or suburbs would be huge anyway.

It will require a lot of work to decide what size plots people are on. No one has all that info right now in a usable form for a tax. Multi million £ flats can sit on relatively small pieces of land and some modest bungalows have far more! Don’t expect anyone to have thought this through! It’s hardly the most pressing thing to do but it’s what a flag waving socialist would do to get at the rich.

It’s going to be expensive and time consuming to implement and I would hope they will do a proper cost benefit analysis early on.

my understanding is you would pay a % of market value every year rather than the bigger % stamp duty. I assume they think spreading it out they will get more and it removes that lump sum on moving

i feel he needs to be more dynamic and move a bit quicker. He can’t balance the books by just taxing more

and it’s very cynical of him if this is a tax on the south in order to win back the red wall and I’m really fed up of the short termism of chasing the next election

Is it going to end up like the window tax with new homes built to take up as little space as possible!! Lots of new terraced housing!!

In terms of downsizing I think it would deter people from doing so at all or indeed affect the entire market from moving around

Those who have already bought won’t want to pay a year on year sum given no one will have any idea how much that sum could change in time. People will simply stay put. They’ve already paid stamp to buy, why risk long term uncertainty

Abolishing stamp duty would be a brilliant move, it is a terrible tax. My hope OP is that there would be a measure of relief for anyone who has moved home and paid a big stamp duty bill in the last x number of years, otherwise it would be horribly unfair.

Fictional example:

Mr and Mrs Jones have a 4 bed house in Warwick. It’s worth £850k.
Scenario 1 - Current System
They look at downsizing. They don’t need such a large house any longer.
They find a great bungalow that they love. It’s £600k. They realise they’ll be paying £20k straight to the tax man. Total moving costs £25k. They decide, rather than go through the hassle and costs of moving, it would be cheaper to stay put and get a cleaner once a week for a few hours to help them manage.

Scenario 2 - Land Tax system
They buy the bungalow. It’s a lower CT band. The cost of moving is now only 5k.
They sell their house to a young family moving into the area and hardly notice the land tax as their new house is smaller and the charge is low.

Those who have paid it to move into their homes already would continue to pay council tax with no LVT add on.
It would only affect those buying after it’s implemented

Yes you’d feel pretty sick if you’ve paid £100k in stamp this year and then find you’re paying £10k a year lvt.

its going to be tough for a lot of people to find any more to pay on an annual basis and this tax will hit everyone

You realise it has to be replaced by something to bring in the same amount of money!!!

Why is it quarter of a mill in the first example?

So a brake on the property market which will take a long time to time out

Yes

but essentially it will help first time buyers

Love your username.

It's miniscule for FTB anyway. We bought in December for just under £400000 and it was 1Pc I think, my brain isn't working. It wasn't much anyhow

No
but it’s a big vote winner
and a bigger one off saving for those who aren’t first time buyers

Long term of course probably not, but that’s a complete unknown atm

I have seen articles where he talks about it in addition to other taxes. The article actually quotes him as saying, "It’s a highly regressive tax. I see a big case for land and property and business taxation to be changed." Labour has done so well with property and business taxes so far...

That doesn't sound much like a replacement.

The biggest problem with a land value tax is that your tax bill can go up even when your income doesn't. People may not like stamp duty, but at least you only pay it when you buy. A land value tax keeps coming year after year regardless of whether you can actually afford it. If your house value rises but your income doesn't, where is the extra money supposed to come from?

To me, it's a tax on security. Instead of fixing the planning, housing and regulatory failures that pushed house prices up in the first place, the answer seems to be to tax the people living in them. The end result is that people on modest incomes get pushed into debt, downsizing or selling, while higher earners might resent it but can largely shrug off the effects. Having to sell the roof over your head to fund government spending? Make it make sense.

One thing that seems to get lost in these discussions is the assumption that house value equals wealth or profit. It doesn't. The amount a homeowner has invested in a property is often made up of the purchase price, mortgage interest, renovations, maintenance and other costs accumulated over many years.
Real profit is: Sale price − purchase price − mortgage interest − renovation costs − buying and selling costs − taxes

A £2 million house does not automatically mean £2 million of wealth, nor does it mean £2 million of profit.Much of that value may simply be the result of decades of mortgage payments, renovations, maintenance and careful spending. If the same money had been spent on holidays, cars or other day-to-day consumption, nobody would be calling it wealth. And If the issue is "wealth", then surely we should be looking at actual net wealth, not treating the total value of a home as if it were all profit.

And what is the message here? That ordinary people shouldn't be allowed to live in desirable areas unless they are wealthy? Or that buying a fixer-upper, spending years renovating it and/or staying there for decades is somehow a problem that needs fixing? Or that by daring to have something to show for your spending, you should pay higher taxes?

It's not progress, it's a race to the bottom dressed up as tax reform. Why aren't we growing the economy and building more homes so that more people can enjoy the same opportunities? Why is the solution always to pull people down rather than lift others up?

Its based on the size of the land? Bungalows tend to be in bigger or at least the same size plot as the average family home

What is the cost then of this LVT, how is it calculated?

What do the new young family pay who buy the 4 bed? And when do they pay it?

I understood that it was based on the value of the land rather than the size of it. Obviously those two are often linked, but not always.
It really would be crazy to expect someone with a house worth £200k in the North with a large garden to annually pay four times as much as someone with a house worth 1m in London with a small garden. (Another example pulled from the air to illustrate a tax situation that is also hypothetical).

You've identified the benefit, but not the cost.

Yes, getting rid of stamp duty might encourage some people to move. But replacing a one-off tax with an annual tax means many people will end up paying far more over their lifetime than they ever would have paid in stamp duty.
You mention a retired couple in a four-bedroom house. They may well want to downsize. But why swap a one-off cost for a permanent annual bill that follows them for the rest of their lives?

One of the attractions of paying off a mortgage is the security that comes from knowing your housing costs are lower in retirement. A land value tax means there is always another bill to pay, whether your income has gone up or not.
And if the aim is to make housing more affordable, why not focus on building more homes and growing the economy instead? Why is the answer always another tax?

I seem to remember another product being sold as a barely noticeable charge... student loans. They were supposed to be little more than the cost of a few coffees or a Starbucks each week. Funny how those "small" charges have a habit of growing over time.