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austrianec

Politically Acceptable Land Value Tax

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Like a lot of people on this forum, I think a tax on property is right because, at its most basic level, a state exists to protect property. The biggest political issues in introducing an LVT are:

1. People (especially pensioners) didn't sign up to it when buying their current homes

2. Related to the above, valuing properties can increase the burden on people which is why council tax revaluations don't happen

...but there is a political opportunity because an LVT could be used to get rid of council tax. In fact, a really simple proposal would be an LVT fixed at e.g. 2% of a property's purchase price in the short term e.g. 3 years, then increasing with inflation. That would replace any council tax liability and, if you also took the opportunity to eliminate stamp duty below e.g. £500k, could be framed acceptably. You could bribe the oldies ("I'm never leaving this house") to love it by cutting council tax every year on houses that don't move into the new system.

The reason you only introduce the LVT when houses are sold is because of the difficulty in valuing them...but, hang on, a lot of properties are being let out to provide an income stream for landlords. The average yield is generally agreed to be around 5%...so why not tax landlords at 40% of the rent they take for all new contracts (to represent 2% of the property value)?

You can justify this as more than mere landlord-bashing. At the moment 20% of all private rent is paid for by the government, so if the government took back 20% of all private rent immediately, it would be making landlords pay for their own subsidy. Scrapping the council tax liability when new tenancy agreements are signed can justify the eventual 40% figure. Rents won't go up because landlords would be charging more already if they could...and if it makes them forced sellers, it keeps the market moving in the transitional period. So the full proposal would be:

- Tax on all homes sold after April 2015 equal to 2% of their highest sold value in the last 3 years. Flat initially, then rises by CPI after 5 years of ownership. Council tax scrapped on such properties

- Council tax reduced by 1% per annum on all properties that do not change hands after April 2015 ad infinitum

- Stamp duty scrapped on all houses sold for under £500k that are subject to council tax

- 20% tax on all private rentals from April 2015, payable by the landlord, for existing tenancies. 40% tax on all private rentals from April 2015 for new tenancies

It gives the following political pros:

- Pensioners love it as they don’t intend to move and their council tax will go down

- Stupid home buyers think they can afford bigger mortgages e.g. “get a nicer home” as they don’t have to pay stamp duty. Even more significantly, gets the approval of stupid parents of stupid home buyer…could get 6 votes for one married couple buying a home

- Landlords pick up the tab

- Very simple headlines (pick one of the above depending on your target constituency)

- Revenue positive

So it basically gets votes from everyone who's not a landlord and the headlines "council tax to fall 4EVA" can be easily passed on; in a close election, I certainly think a package like that could swing a tight election. The biggest hurdle would be that MPs are often landlords themselves.

From an HPC perspective, I'm essentially proposing we increase the interest rate on new lending by 2% overnight (but in a politically shrewd way that doesn't crucify existing borrowers)...if anyone argues that 2% would be more than a house's current council tax liability so they can't afford a property...well, maybe they're planning to overpay for the house...

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