How Lo-Tax (LVT)could be gradually adopted

Presentation by William DavisonChair of ALTER

What is Lo-Tax• Lo-Tax is ALTER’s brand of Land value

tax base value of land or rental value, not property.

• Taxes vacant land same as built on plot• Its an annual Tax with regular revaluations• It would replace existing property taxes

and not add to the overall tax burden• Lo- is for Location and for a lower tax

burden

Tax shift: buildings to land

• Encourages building upkeep & improvement Stimulates new construction where needed Keeps land prices affordable Discourages urban sprawl by encouraging good

site use in already developed areas Reduces building on green field sites Revitalises inner cities, 1% LVT = 16% increase

in construction

Lo-Tax aims to replace 3 Property Taxes

• Council Tax is very regressive, highest Band is only 3x lowest Band.

• Business Rates while base on rental value is a aggressive tax on Capital values of buildings

• Stamp Duty Land Tax is transaction tax that acts as tax on mobility of labour and reduces house sales

Lo-Tax proposal 2012

• Replace Council Tax, Business Rates and SDLT

• Land value tax = 3.25% on all land not currently covered by Business Rates.

• Allowance £4000 per hectare to exclude most Scottish Farmland

• Industrial, Business, Retail land taxed at 8% including vacant & derelict sites

• 75% of home owners would pay less or no more.

• Problem was it could take up to 5 years to setup

Reliefs and Transition options

• Pensioners could defer payment until sale or probate

• Homestead allowance• Allow use of unused tax Income tax

allowances against Lo-Tax• Slow transition to Lo-Tax over several

years, only effecting the higher value properties

• Bottom 4 CT band pay no more than now

Implementing LVT & the electoral cycle

• Win election or form coalition • Draft legislation, over come Treasury objections• Debate legislation, overcome House Lords• Perform Valuations on 28m+ properties• Calculate reliefs and review appeals• Usual government IT project, late/over budget• Early teething problems & attacks in the press• Finish all that just in time for the next election

Council Tax to LoTax Step 1Change Council Tax so it’s charged to the

landowner, rather than the tenant.

• Collection will be easier and more efficient for councils.

• Landlords will be able to pass the tax on to the tenants through increased rent, at least at first…

• It will mean that the landowner will pay tax even on empty properties, encouraging them to attract tenants.

Council Tax to LoTax Step 2Replace the top tiers of Council Tax

with a 1% rate Location Tax

• Only a limited number of properties (>1%)will need to be surveyed and valued.

• As only the location will need to be valued, detailed surveys of buildings won’t be needed.

• Only the richest will be affected at first.• The money raised can be used to scrap or

reduce Stamp Duty, making it easier to buy and sell properties.

Council Tax to LoTax Step 3Progressively replace more CT bands

with Lo Tax while raising the rate

• Adding new properties gradually will allow time to build up the valuation infrastructure required.

• The rate can be gradually raised to 3-5%.• Revenues raised can be used to reduce taxes on

income.• Extend to and land with residential planning permission,

to discourage land banking and encourage development.• Council Tax would be replaced by the Location Tax.

  

Lo-Tax rates by year and Council Tax band

  Land Value% = LVT rate Year 1 Year 2 Year 3 Year 4 Year 5

  % of property CT Band 1.00% 2.00% 2.50% 3.00% 3.50%

  22% A £ 766 £ 766 £ 766 £ 766 £ 766

  23% B £ 894 £ 894 £ 894 £ 894 £ 894

  23% C £ 1,021 £ 1,021 £ 1,021 £ 1,021 £ 1,021

  27% D £ 1,149 £ 1,149 £ 1,149 £ 1,149 £ 1,304

  30% E £ 1,404 £ 1,404 £ 1,404 £ 1,664 £ 1,942

  33% F £ 1,660 £ 1,660 £ 2,056 £ 2,467 £ 2,879

  36% G £ 1,915 £ 3,068 £ 3,835 £ 4,602 £ 5,369

  39% H £ 3,136 £ 6,271 £ 7,839 £ 9,407 £ 10,975

Income tax cut 0% 1% 1% 2% 3%

Basic rate 20% 19% 19% 18% 17%

Higher rate 40% 39% 39% 38% 37%

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A B C D E F G H I

Council Tax Bands

Lo-Tax

Council Tax

Advantages over previous Land Value Tax Implementation proposals

• Lo-Tax can be introduced within 12 months of it becoming legislation

• Only Band H properties (>1%) will need valuing in the year 1.

• 5% properties in Year 2, 8% in Year 3 etc…

• Scrap SDLT in Year 1 to reduce risk of falls in property & land values

• More Land Tax could raised in a shorter timescale with this method

• Can cut income Tax in year 2, 95% pay no extra property tax

• Larger and faster income tax cuts are possible much earlier

• Vacant land will be tax from Year 1and will have been developed by the time lower Council Tax bands see increases

• If landlords try to pass on tax, in early years most tenant pays no more than the cut in Council Tax

Key Elements of LVT Implementation

• Establish a valuation method (Geographic Information system)

• Appeals process

• Collection method (Government IT project)

• Limited, but reasonably large rollout

LoTax Lite• Mansion Tax, a land value based tax to replace

the top Council Tax band H– Use the revenue raised to abolish or reduce Stamp

Duty Land Tax.• Vacant Land/Empty property Tax

– Use revenue to offer businesses option to pay LoTax instead of business rates.

• Marginal Business Land Tax- Acts like a national enterprise zone on low value land

• Establishing valuation, appeals and collection methods for future full LoTax

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100 125 156 195 244 305

LoTax Business Rates

Questions?

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• Twitter: @libdemsALTER

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Council Tax Bands

Lo-T

ax B

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1% Year 1 rate2% Year 2 rate

2.50 Year 3 rate%3% Year 4 rate

3.50% Year 5 rate

40% of wages cost are paid to the government on pay over £10,000

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Employer NIEmployee NIIncome Tax

Marginal tax rate for Income Tax and Employers and Employees National Insurance 2011/12, using calculations from http://www.uktaxcalculators.co.uk. i.e. the Net Tax take for an additional £100 the employer spends on the employee.

 Current Council Tax rates for

comparison Scotland  

CT Average Council Current total Cumulative % Number of

Band Value (£) Tax (£) Council Tax (£) of households  

A 67,000 766 399,528,234 22.3 522,778

B 83,081 894 503,998,811 46.3 564,249

C 107,201 1,021 380,088,060 62.0 370,717

D 138,021 1,149 342,927,083 74.7 298,354

E 184,921 1,404 429,204,672 87.8 305,985

F 249,241 1,660 279,103,062 94.9 168,273

G 426,121 1,915 207,355,350 99.5 107,931

H 804,000 2,298 26,538,346 100 11,449

Totals     2,568,743,618   2,349,736