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Land Value Tax - Who Pays Leasehold Property?

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The freeholder - as the freeholder benefits from the increase in the value of the location due to social expenditure.

Only if the lease is short.

"Virtual freehold" is now commonplace, meaning leasehold where the lease is so extremely long, that any possible consideration for renewal of the lease is negligible.

A freeholder where the leases held are 100 years (or even 1000 years) essentially sees no uplift in the value of his freehold from social expenditure. The uplift is taken by the leaseholders.

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Only if the lease is short.

"Virtual freehold" is now commonplace, meaning leasehold where the lease is so extremely long, that any possible consideration for renewal of the lease is negligible.

A freeholder where the leases held are 100 years (or even 1000 years) essentially sees no uplift in the value of his freehold from social expenditure. The uplift is taken by the leaseholders.

It would have to be split pro-rate based on the value of the lease vrs the value of the freehold.

With LVT short leases will disappear anyway as there will be no demand for them.

No-one actually WANTS to pay tens of thousands for a short lease with all its risks, they only do it because there is artificial shortage.

Leases are actually a symptom of the broken tax system.

Short leases will phase themselves out until eventually the freeholder has to pay all the LVT and will probably sell.

In reality LVT will only be around for a few years anyway before the elite use the (possible private) army to revert to the existing tax system, possibly following a bloody "uprising" to overthrow the "communist government" as they'll call it, probably with the help of the Americans.

Or possibly Americans just provided enough funding to certain anti-LVT British parties so that they can swamp the country with advertising and sweep back to power.

The elites will see us all turned into petfood before they allow their wealth to be taken from them.

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All leases contain clauses that say any newly invented taxes imposed on the freeholder can be passed through to the leaseholder. So it doesn't matter what the law says - the leaseholder will be paying, or forfeit their lease.

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In reality LVT will only be around for a few years anyway before the elite use the (possible private) army to revert to the existing tax system, possibly following a bloody "uprising" to overthrow the "communist government" as they'll call it, probably with the help of the Americans.

Or possibly Americans just provided enough funding to certain anti-LVT British parties so that they can swamp the country with advertising and sweep back to power.

The elites will see us all turned into petfood before they allow their wealth to be taken from them.

Most countries have much higher property taxes than the UK - including the USA. If we introduced a land tax it would look like "reversion to normal" to the Americans. One of the major reasons foreign millionaires are so keen to buy here is that they only pay a couple of thousand in tax a year so it's a good place to "park" money in a tangible form, and also provides a bolthole when your fellow citizens you've been bleeding dry all these years finally rise up in revolt.

In most European countries and most US states you'd be paying a percentage of the purchase price every year as tax.

(Personally I support a Land Area Tax, not a Land Value Tax. I don't care whether you've got a shack or a mansion on the land, I only care what square footage you're calling "yours". I far as I'm concerned you're renting that from the rest of us.)

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All leases contain clauses that say any newly invented taxes imposed on the freeholder can be passed through to the leaseholder. So it doesn't matter what the law says - the leaseholder will be paying, or forfeit their lease.

I think It doesn't matter at all who sends the cheque, the invisible hand will do the work. LVT is a price for a service, so market forces apply.

If the lease holder pays, leases fall in value. So the freeholder bears some economic cost.

I would guess that a proper analysis would show the tax split between the two, depending upon the length of the lease. For long leases, it would be mostly the leaseholder, and vice versa.

It probably depends a lot upon the details of the contract, and what rights each party gets to raise rents and such like.

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(Personally I support a Land Area Tax, not a Land Value Tax. I don't care whether you've got a shack or a mansion on the land, I only care what square footage you're calling "yours". I far as I'm concerned you're renting that from the rest of us.)

That isn't how LVT works. The land value isn't changed when you build on it.

A house value tax is stupid - its a tax on development.

Taxing land areas is also silly because some locations are more valuable. Should an acre of useless wasteland be taxed the same as an acre of central London near good jobs and schools? Which is a more scarce resource?

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(Personally I support a Land Area Tax, not a Land Value Tax. I don't care whether you've got a shack or a mansion on the land, I only care what square footage you're calling "yours". I far as I'm concerned you're renting that from the rest of us.)

That's what LVT is. It's about the value of the land not what's on it.

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Only if the lease is short.

"Virtual freehold" is now commonplace, meaning leasehold where the lease is so extremely long, that any possible consideration for renewal of the lease is negligible.

A freeholder where the leases held are 100 years (or even 1000 years) essentially sees no uplift in the value of his freehold from social expenditure. The uplift is taken by the leaseholders.

Only during the term,

At the end of the lease the uplifted value reverts to the freeholder (for free), unless that is, the leaseholder take up his rights to extend his lease, but if he does so the formula moves much of the uplifted value to the freeholder, at that point.

(Though it's all moot as it's never going to happen)

tim

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I think the tax should be paid by the owner of the land: the freeholder

But

Scenario: Lease is up for renewal, Freeholder factors in 90 years of LVT into its renewal valuation.

It’s ridiculous, unnecessary and for most people impossible to pay the freeholder 90 years worth of LVT upfront.

Therefore we need legislation to ensure the leaseholder can cut out the middleman and pay LVT on his “unit” (portion of the freehold) on an annual basis, so it is not factored into any lease renewal.

I believe the best way to do this is once the LVT is paid directly by the leaseholder, the leasehold should legally become a commonhold* with both parties on equal standing (though the former leaseholder would have a smaller "portion" and less to pay for services/repair compared to the freeholder with multiple leases)

Implications:

The freeholder who previously leased the land should be liable to pay LVT on all his unexpired leases. He may refuse to pay, in which case the amount owed should be deducted from his capital gains if he/or an inheritor eventually sells. Effectively the "asset" becomes worthless to him.

His previously lucrative source of unearned income would start haemorrhaging money and shrinking as the commonhold grows. His best option would be to sell his remaining portions of the commonhold to his leaseholders or anyone else who makes productive use of the land e.g. local councils for council housing.

In conclusions LVT should kill leaseholds.

 

* A commonhold is a share of a freehold. Note there should be an automatic, statutory charge for the payment of service/repair costs (approved by the majority of commonholders) if a commonholder fails to pay his or her fair share of contributions.

 

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  • 399 Brexit, House prices and Summer 2020

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      • down 5% +
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      • Even
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      • up 5%



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