The Communities secretary, Sajid Javid, has issued a consultation to look at a range of measures to tackle unfair and unreasonable abuses of leasehold.
The Leasehold Knowledge Partnership and Carlex seek to represent the interests of residential leaseholders and end unfairness in this form of property tenure. Carlex, the Campaign Against Retirement Leasehold Exploitation, represents the interests of retirement leaseholders. They provide the secretariat to the new All Party Parliamentary Group on leasehold and common hold, formed on September 7 2016.
Ed Davey MP, has been closely involved in the investigation of Cartel-like practices and Leasehold abuses in retirement homes.
England and Wales are unique in the world in perpetuating flat “ownership” in the form of a tenancy – leasehold – with all the vulnerability that that involves. Many who live in flats are young, old and single. Often knowledge of leasehold is very limited, and in disputes they are disadvantaged.
The Financial Times describe the Leasehold form of ownership as a feudal, wasting asset with opportunities for exploitation. The article tells the story of Mary Davies who married into an aristocratic family and received by way of a dowry, 500 acres of marshland that was situated in today’s Mayfair and Belgravia. The estate, now valued at £9 billion was inherited by the new Duke of Westminster, 25 year old Hugh Grosvenor, free of inheritance tax as the property is largely held in a series of perpetual trusts and foundations.
Much of the focus of the Leasehold consultation will be on unfair practices and the large sums leaseholders have to pay in respect of ground rents and inflated service charges. It is not simply leaseholders however, who are subject to this usury. When we purchase a freehold we are committing a large portion of our lifetime earnings to the acquisition of land, with capital repayments and Interest on mortgages absorbing an ever larger share of disposable income. Tenants on short leaseholds are paying the larger share of their rents for the right to occupy land and not for the buildings constructed on land.
Land is a gift of nature and a common good just as air and water are. The capital sums and interest paid for freeholds and leasehold interests in land and the ground rents thereon are properly collected as public revenues for the common good of all.
The rewards to industry and commerce are properly related to the production of goods, like houses, and the provision of services that are not freely provided by nature. Air is free to all, so too is water. We pay for the cost of transporting clean water to our homes and workplaces and the price is regulated by Ofwat.
Is it not time that we recognised that land must be shared by all and that the money we pay from our earnings or profits for the privilege of exclusive occupancy of land, should be used to fund our infrastructure, defray the cost of our public services and ensure that everyone has shelter?
* Joe Bourke is an accountant and university lecturer, Chair of ALTER, and Chair of Hounslow Liberal Democrats.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Shropshire zoo seeks runaway 'beloved' capybara
Fraser's West End ward surgeries later today #dundeewestend
What's next?
Firebird
Starmer making a mistake over Single Market - Davey
Reviewing the general election
Peter Martin
Steve Comer
John Waller
Chris Moore
Michael McDowall
24 Comments
Leasehold wouldn’t be as bad if only it was regulated. Buying a leasehold property is effectively entering a contract with the freeholder; except the contract doesn’t stipulate exactly how much ground rent and service charges are payable, and what the charges can be increased to within a given timeframe.
At least with a tenancy agreement, if the landlord increases the rent too much it’s easier for the tenant to up sticks and leave; so market forces at least do something to help keep the rent in check. With a leasehold, it’s much more difficult to escape from the financial commitment, and high ground rents can make a property a toxic sale.
A gift for cartoonists. One I saw a few years ago showed a bearded old man leaving a house saying “That is the last time I buy a 99 year lease”. Tory MP Peter Bottomley has campaigned on it. The abuse is obvious. The government has been slow to act.
In 1994-1996 a government looked for popular policies to help them win a larger majority at an early general election.
Plus ca change, plus c’est la meme chose.
I would love to see a class action on trade descriptions in relation to leasehold property. To say a property is for sale in respect of leasehold is misleading. What you are actually doing is paying a one off advanced rent.
This has been a national scandal for years, not only in terms of lack of prosecutions under the Leasehold reform act 2002 but tax avoidance issues as well. When you start to look into this it goes very deep and I a suspicious that a lot will get swept under the carpet in what is going on now.
No one has to buy a leasehold property: the ground rents are clearly laid out when you make the purchAse. Shouldn’t we treat people as adults who can make their own decisions?
Excellent article.
@Simon – you could say the same about PPI selling, and about loansharks though, yet we accept that people can be abused by the industry there. The issue with ground rents is that people may well have been told in 2010 that their ground rent would double by 2020, but they almost certainly were *not* told that, because of that continual doubling every decade, their house would be un-sellable by 2060 because no mortgage company would touch it by then…
A couple of the links here appear to have dropped out. The FT one is interesting
http://www.leaseholdknowledge.com/leasehold-feudal-wasting-asset-opportunities-exploitation-says-financial-times-devastating-article
Simon, this is not simply an issue of ‘Caveat Emptor’. I would urge you to take a look at some of the reports on the Leasehold Knowledge Partnership to see how this area is riddled with corruption, and carperbaggers preying on the young desperate to get on the housing ladder and fleecing retirees of their life savings.
The argument in this article is that the land of the nation is common property. We pay large capital sums, enter into 25/30 year mortgages or expend an increasingly greater share of our earnings, not so much for the price of houses, flats, shops or offices, but for the benefit of private occupation of the land on which those buildings stand.
These payments for Land are in many cases as much, if not more, than what we pay in taxes now. Were they to be collected for the common benefit of all, taxes on labour and industry could be reduced proportionally and much of the private debt mountain that accumulates from generation to generation by way of mortgage debt reduced to manageable levels. Tackling over-indebtness and extortionate land rent would set us on the path to dealing with the pressing issue of the great wealth inequality that bedevils us today.
This is so long overdue that I can’t believe it hasn’t been addressed before, but I understand there has been something of an upturn in their use by modern developers, and that many more are exploitative.
I was listening to a lady on the radio the other day, and she said she didn’t want a leasehold house, but that in the area of the country where she lived, all of the new build houses had them, and in order for her to take advantage of the Help to Buy scheme, she had to buy a new property. Putting aside the nonsense that the Help to Buy scheme was just a bung to developers, selling the free-hold separately is the housing equivalent of those hidden costs that budget airlines were prone to springing on travellers that aren’t really optional.
What’s worse is that many people, including the lady on the radio, were told that they’d have the option to buy the free-hold after a couple of years for a reasonable sum. Instead, their freehold is sold off to an unknown company without their knowledge.
This issue is a big example of why a free market needs to be heavily government regulated to protect the consumer from the sharks providers.
One of the reasons I left the Conservatives, large companies seem to be under the impression they can get away with murder whilst they are in power – it is not just house builders either! I don’t know if it is Conservative incompetence or good old corruption!
@Cllr Mark Wright -one differnrce from PPI is that people didnt have a lawyer with a specific duty to tell them what they were signing.
@Joe Bourke “The argument in this article is that the land of the nation is common property”. It isnt though -if i own the freehold of my house it isnt common property , its mine .
”Tackling over-indebtness and extortionate land rent would set us on the path to dealing with the pressing issue of the great wealth inequality that bedevils us today. ”
Hi Joe,
I would wager the inequality of wealth is also the super rich do not pay IHT at all but the middle class ones do which compared with elsewhere pay a high % (bare in mind getting on for half of european countries have no estate tax at all). This is not helped when the tories cut the tax slightly and the left of center parties oppose such moves while not even addressing the super rich avoidance. I fear that somehow someway the super rich with their vast land holdings would find a way not to pay a land tax but more ordinary wealthy would not (just like IHT). Given as far as I know no politician raised an issue when the duke of westminster died last year I hope you can see my concerns.
Simon,
When buying a house you have a conveyancing solicitor with a specific duty to tell you what you’re signing!
My issue with leaseholds is that there are no limitations on what can be charged for ground rent or maintenance charges. It’s completely unregulated. However, I wouldn’t advocate banning leasehold altogether, because that would bring ownership of flats and apartments out of reach for all but larger landlords and property developers.
There has to be more consumer protection when buying property, and in the construction industry as a whole.
@John – why is that fact that there is no limit a problem if people know what they are signing. if you dont like it, dont sign
Simon McGrath,
Land in England has never been absolutely owned by the freeholder. Freehold property is property held “of the Crown” in fee simple: it is not allodial title to the land, i.e., land held without reference to any superior lord. This provided the basis for feudal duties, such as knight service, often commuted into a money rent, forming the basis for land taxation to this day.
Under existing Law, (The Law of Property Act 1925) Land title is held of the Crown, and the Crown does have the right to establish ownership of land and impose a levy on such ownership. English Common Law is based on natural relations within society, and not arbitrary decrees and statutes. The right to assess landed property for a land-related payment is merely a recognition in our law that land ownership cannot be absolute, that land anywhere in the world existed before any human society was formed, that the land that we live on forms a common social resource, and so it not genuinely “ownable” by anyone in any country, society or time period.
The 1925 Act followed on from a series of land law and policy reforms that had been begun by the Liberal government starting in 1906.
Lloyd George in the budget of 1910 proposed to tax the land. The radically revolutionary character of this proposal was at once recognized in England. It was bitterly fought by all those who treasured what had remained of the old English aristocratic rule. When this budget finally passed, the basis of the old real property law and the effective power of the House of Lords was gone.The legislation of 1925-26 was a final completion in the realm of private law of the revolution that was fought in 1910 in the forum of public law, i.e., in the field of taxation and the power of the House of Lords.
Sam,
Estates like that of the Grosvenors escape inheritance tax through the use of offshore trusts and foundations managed by discretionary trustees where no beneficiary can be determined in law for the purposes of IHT. A land value tax does not rely on such sophistry. The land (unlike land titles) is immoveable and can be subject to tax on the basis of capitalised land rental values. The Grosvenor estate would continue to be a very valuable property holding based on the income from its built estate, but the rents from the land (the economic rent) would be captured for the public benefit.
Fred Harrison in ‘Ricardo’s Law’ analyses the property market and traces the effect of taxes used to pay for public services to illustrate how governments unwittingly transfer money from people on the lowest incomes to asset-rich investors.
Owners of high-value homes are able to recoup what they pay in taxes through rising property prices. Thus they enjoy the tax-free use of schools and hospitals while lower-income earners and increasingly younger families that rent their homes carry the cost of infrastructure investments and public services that enhance the value of the homes of the wealthy.
For most of use increase in the value of homes makes little difference. If we sell a house we must pay an equivalent amount for another property. If we leave our home to our children to live in or to get a deposit for another home they too must pay the inflated prices for land. Small buy-to-let landlords pay put much of their rents on loan interest and rely on capital appreciation to make a profit. This appreciation raises the cost of buying or renting a home for all.
Inflated land prices and rents exacerbate inequality and force the great majority of us to expend the majority of our earnings on mortgages, rent and taxes. Capture land rents as tax to fund pubic services and the main beneficiaries of those public investments and services, landowners, will be contributing in proportion to the benefit they receive, with the great majority paying lower taxes at the same time.
Joe,
So what would you/Lib dem land campaign do visa ve IHT then? reduce the rate/increase the exemption? It seems at least from doing a little reading on the matter goverments for decades have simply tinkered and put in place avoidance measures that just effect middle class types, while other countries are abolishing theirs.
Sam,
“governments for decades have simply tinkered and put in place avoidance measures that just effect middle class types, while other countries are abolishing theirs”.
Alter’s (https://libdemsalter.org.uk/en/) campaign is based around introduction of LVT at current income tax rates on imputed land rental values, somewhat similar to the system in Singapore. This is not a single tax but part of a broader tax base.
Inheritance tax does not currently generate a significant part of tax collected (circa £4.5 billion) and this is mostly from middle class families with valuable homes. There are 100% exemptions available for agricultural and business property. With the introduction of LVT, I think land would be exempted from IHT and the tax could most likely be abolished altogether with little overall impact on the public finances.
Inheritance tax had “always” been a bugbear for some who believe it is unfair to pay tax on assets bought with money already taxed once. It is one of those taxes where people have very different fundamental ethical views.
Many people think it is a natural human instinct that wealth should be passed along the generations, because it had been bought out of taxed income in the first place and you don’t want to tax it again.There are others who take very much the opposite view
My own view is that once land is exempted in favour of a lifetime LVT, it would not be worth collecting on other assets like stocks and shares. Larger estates that include stocks and shares are usually transferred as business property and not subject to IHT. So again, it is mostly middle class families that pay IHT on the inheritance of smaller holdings of stocks and shares.
Hi again Joe,
I think its not so much people oppose any kind of IHT its ‘relatively’ low exemption twinned with the relatively high rate, if the high rate kicked in at the Duke of Westminsters (and sizeably below) ‘wealth’ it would be too little it could be argued. Take italy there it is 4% or the above the equivilant exemption here Germany’s is only 20% per recipiant rather than here it is based estate size so you can quite easily have a couple with not to unusual 2 kids where the state takes a bigger share above the exemption.
Although from talking to my landlord it seems renting out property is not ‘business property’ so therefore is subject to IHT (pretty much any landlord in the south will be over the exemption given prices) In my view if farmland is totally exempt so to should renting out property given the amount of regulations apply to renting out properties (if it was purely an investment the requirments surely would be just to pay the tax required) so it would seem renting out property is such where goverment regulated it as a business but for IHT purposes say it is not.
I suspect unless it is land tax is promised in tandem with abolishing IHT (or increasing the exemption hugely to reflect the very truly rich) many will think it will another wealth tax on middle england. Given the tories fortunes were revived with their pledge 10 years ago and with the brexit fall out the lib dems would do well if they promised to abolish IHT (worth pointing out yougov had a poll saying its most unpopular tax) in tandem with bringing in a land tax, so should you ever meet Mr Cable that would be worth mentioning to him.
Those are good points, Sam. You are quite right that IHT is widely resented and seen to apply only to smaller estates and investments in residential property. Another tax that could go if LVT was introduced is SDLT which is quite regressive and a considerable obstacle for many in changing residences.
Excellent article! To get to the point, leasehold on land under homes is an anachronism and a tax on homeowners by absentee landowners. It is time for the Lib Dems to campaign for My Home is My Castle legislation to ban this practice regarding new homes, and for terminating existing leaseholds.
Very easy to restrain property prices by way of a heavy sales tax as per many Euro countries… it would be political suicide though and not even appeal to Labour MP’s, many of whom have London properties.
Should not inherited wealth be taxed as income, and trusts taxed out of existence? In the interests of fair taxation as per Lib Dem thinking. At least then the poor would pay less on inherited money than the rich already paying the highest rate of tax.
BTW, freehold property is freehold property, were any one try to take mine off me through a quirk of the law… we have to be polite on this site so fill it in yourselves. Also inflated property values give me the option to downsize and cash in – a lot of that money then spent in the economy, though of course the purchaser will have less to spend so may be no real gain.
Bill,
Fowler is an Old English name indicative of a person occupied as a bird-catcher.The name comes from the Anglo-Saxon ‘Fugal”, meaning fowl.
Land ownership presents a conundrum to someone in the twenty-first century faced with a situation in England where the majority of land is owned by the aristocracy. How did they get it? How can they own it? In each case, if traced back to its original, you would find that land ownership had descended via a long series of purchases from land originally granted by the Crown, or has been held by virtue of such an ancient Crown grant without sale since. The original land grants made to Norman nobles could only be made in the context of English Common Law, which provided for exactions to be made by the Crown. It is clear that a common social resource—the land—a resource that naturally exists, is not the product of investment or the application of human skill and is generally not something that more can be produced of—has become monopolised by a few. This does not change the fact that land ownership can only ultimately be vested in society as a whole, as represented by the Crown, and that that land has to be the source of revenue for the upkeep of society.
The colonial societies founded by English settlers have transplanted our system of ownership overseas. We have been able to see, in the historical period, the process by which “ownership” of land has been established and created. If the Crown had the right to make land grants in America, Canada and Australia, etc, it was only by virtue of its conquest of those territories. just as the Norman nobles established their rights to our common social resource—the land—nearly 1,000 years ago.
Your bird catcher ancestors very likely were freemen with access to English common land until the Normans came along. It has taken a millenium to get back to a situation where you can call a small parcel of land to call your own, and even then only by virtue of paying a significant part of your lifetime savings to do so. If land prices continue rising as they have been, there is no guarantee that your descendants will be able to emulate your achievement and we will be back to a situation when the great majority must rent housing or business property from the few that have asserted the rights to land.
Bill,
Nick Boles was a conservative minister for skills in the coalition government. He gave the 2012 Macmillan lecture and addressed the purpose of land Value Tax:
http://toryreformgroup.tumblr.com/post/17259025518/david-cowan-progressive-conservatives-should-support-a-l
“For too long, landowners and speculators have been able to reap sizeable economic outputs from rising land values, though contributing little economic input. One example being how the construction of the Jubilee line sent surrounding land values shooting up to £10 billion, to the benefit of landowners, while taxpayers still had to foot the bill.”
“We need to reconnect the principles of risk, hard work, and success with reward”.
Another benefit of LVT is it would create a more stable and productive land market. There would be no benefit in owning land without utilising it since landowners would have to raise enough income to pay the LVT bill. The reduction in speculative activity would help drive down prices and rent, so ensuring that growth in the land market is based on sustainable and real returns instead of artificial and speculative booms.
LVT would also be a new ‘eco-tax’ that discourages construction on expensive ‘greenfield’ areas in favour of cheaper ‘brownfield sites’, so limiting urban sprawl. This brings the consequent benefits of reduced commuting distances and less costly road works, which contribute to CO2 emissions and atmospheric pollution.
Properties of all shapes and sizes are already overtaxed by the likes of council tax, business rates, stamp duty land tax, planning charges, and landfill tax. LVT should replace those property taxes. The fact that LVT would also apply to land which at the moment is not taxed at all goes to show how it would raise more revenue than the current property taxes that place a heavy burden on ordinary homeowners.
Land cannot be hidden in an offshore tax haven and calculating the tax bill would be made easier by the fact that land values are already measured by the market, therefore compliance costs could be reduced. The same bureaucratic processes for collecting business rates could readily be translated to the collection of LVT.
The LVT would not harm enterprise. It would boost productivity, discourage urban sprawl, could replace the plethora of punitive property taxes, and would be relatively simple to administer and collect.