The Liberal Democrats have proposed increasing income tax by 1 penny which would raise just £4.6 billion pounds annually. There is a better alternative, called the Property Uplift Recovery Tax which is being proposed by Liberal Democrat ALTER. The tax would be paid annually by all that own housing in the UK and are either:
- British citizens who are have non-domiciled tax status
- Foreign citizens (or British citizens non-resident for over 15 years) who are not taxed in the UK, or
- Corporate entities registered offshore.
The tax would be levied annually on the property price uplift in the local area, and would aim to recover 50% of the long term increase. The tax would raise about £8.5 billion pounds per year (see fully referenced article ).
Taxes need a compelling story which resonates with the electorate, and this tax has one. We are rightly proud to live in a country with a strong economy, a stable government and respect for the rule of law. Housing in the UK is a safe haven for overseas investors, and 10% of housing is now owned by foreign investors. They often leave properties empty, indeed some residential developments in Britain have been likened to towers of safe-deposit boxes. In England 216,000 homes have been empty for over six months.
Average house prices rise largely due to investment in infrastructure, such as Crossrail, which is largely paid for by the UK taxpayer. Any upside of rising UK housing prices should not go to overseas investors, but should circulate around the UK economy. Britain has no duty to allow its housing to be used as a free safe deposit box service for non-UK taxpayers who do not fully contribute to our economy or society, while making housing unaffordable for UK workers and families.
It would be necessary to base the tax on averaged prices over several years to provide stability and predictability. Data sources for local house price trends could include internet sites such as “Zoopla”. The tax would be offset against some already existing taxes. In particular rent to offshore homeowners who do let out their property rather then leaving them empty is currently paid net of UK tax. Offsetting this payment would provide overseas owners with a strong incentive to make currently empty properties available for occupancy.
Promoting this tax would send a strong signal that the Liberal Democrats stand behind working and families who contribute to our society and our economy. There would be three possible outcomes from introducing this tax. First, offshore investors might hold on to their properties and pay the tax, so it acts as a source of revenue. Second, investors might hang on but be motivated to rent out their properties, in which case the housing rental stock increases. Last offshore investors might sell out, in which the revenue will be lower than calculated, but a large number of empty homes would come onto the market at more affordable prices. The UK would win, win or win.
* David Cooper is a member and constituency treasurer of the Newbury Liberal Democrats and has been a party activist for over a decade. He is also secretary of Libdem ALTER (Action for Land Taxation & Economic Reform). The views expressed are his own.
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14 Comments
Mmmm….interesting…as a Chartered Surveyor and Registered Valuer looking forward to reading the article when can print it off
A good idea in the long run but now is really not the time as House Prices likely to start falling by the Summer. They are already falling in parts of London & it will spread out from there, following the usual pattern.
@paul barker
It is a good idea at any time, regardless of short term annual price fluctuations. The tax is based on trends averaged over several years of real term price change. This ensures it is predictable for the owner and provides a fairly constant source revenue for government. Since 1990, real term house price uplift have averaged 3% annually in the UK.
This is an interesting article, but it is not radical enough.
What we need to do is to abolish the private ownership of all land, and to raise revenue by charging rent for the land used. There would be different rates for different uses and sizes of parcels of land. It would also need to take account of the different geographical and climactic conditions to be found throughout the UK.
Such a system exists already. It’s called leasehold. The difference would be that the rent paid would go to the local council or the government instead of to a private speculator. It would abolish the trading of land, all of which would be owned by the community.
Land is a community asset. It is not for private gain. Abolishing the private ownership of land would not interfere with the right to own property (houses, shops, factories etc) built on the land. Land should be used to grow food for people. The rent paid would compensate the community for the loss of food which could otherwise be grown on it.
Great idea! Can the new Mayors progress it?
@Robin Grayson
This is a national tax, not a local tax. It is better than increasing income tax (which is undesirable since it reduces the incentive to work). So it is nothing to do with local mayors.
I like the politics and the aims but a few concerns:
– This may well be illegal under European law if applied to EU citizens. Maybe that’s not a concern given Brexit but could also be affected by any Brexit deal.
– As phrased above, it may also fall foul of multiple tax treaties with provisions for non-discrimination. There may be ways round it (e.g. treating UK expats identically with foreign nationals) but it’d need careful wording and could affect the politics.
– Would there be refunds if property values fell? It’s quite unfair if you tax people on the way up but don’t refund on the way down.
– How do you establish a baseline property value from which to apply the regional change factor?
– What about indexation for inflation?
– This is a tax on capital gains rather than land rents. Will it not discourage desirable property development by foreign investors?
– Fundamentally, this is a discriminatory tax on foreigners, which is not a terribly liberal idea. It would make holding UK property much less attractive for non-UK nationals. That said, I agree the politics make this an appealing ways to shift the tax burden towards housing assets, and that is a worthy goal.
Well, if there is a discriminatory tax, you should first focus on targets like the Russian and Chinese oligarchs…, who are responsible for inflated house price. These groups are not under EU coverage, so feel free to do so.
Sounds good but needs option to defer paying the uplift until the property is sold or the owner dies and it becomes part of their estate, otherwise we make life impossible for those on low pay and fixed incomes who are also homeowners.
Thanks David. My knowledge of this area is very limited, and it does look quite complicated, but it also looks like it would address a lot of our current concerns with the property market, and a fairer way of raising taxes on wealth from at least some of those who don’t pay income tax.
@Thomas
The tax is not discriminatory. It applies to UK citizens who elect to be taxed abroad (e.g. non-doms or long term expats) in addition to foreign citizens taxed abroad. Foreign citizens taxed in the UK would not be liable. It is based on whether the owner contributes to the UK tax base, not citizenship.
@RBH
(1) “Would there be refunds if property values fell? ”
Land prices rise over the run (since 1990 they have risen 100% in real terms), so provided the tax is based on averages over a few years the tax is likely to be positive. In the unlikely event of UK land prices falling over a sustained period, the tax could be set to zero until they next recover- although if that sitution arises I imagine there would be bigger problems than this tax!
The tax would be based on real terms land prices i.e. net of inflation.This point is dealt with in the main paper.
(2) “This may well be illegal under European law”
Then it would apply to property owners taxed in Europe after the likely event of Brexit.
(3) “This is a tax on capital gains rather than land rents.”
Average house prices have doubled in real terms since 1990. The average house has not doubled in size or quality, thus the change is due to rising land prices. Thus it is a tax on unearned land price rises (i.e. economic rent), not capital gains.
Good to see an idea from ALTER take shape in time for the election. Whilst I’m a fan of LVT I suspect that taxing the property value doesn’t quite capture the essence and efficiencies of LVT. For example, a tax on increases in the property price may discourage property improvements (ie to limit tax exposure), which I’d have thought should be encouraged if hand in hand with active use of the property? Or encourage short term, superficial property improvements before selling after short tenure?
That said, I appreciate that using property prices may be an attempt to deal with the challenge of setting base land values and so this is better than nothing. Just need to make sure unintended consequences are limited, not least to avoid the tax being argued down or repealed and LVT being kicked into the long grass.
@Nicholas Rubin “a tax on increases in the property price may discourage property improvements”
Thanks! You are correct that a tax based on any increase on the price of an individual property will discourage improvements. This is the problem with business rates. However, as explained in the ALTER paper, this tax does not have that effect. Property uplift averaged over a local area is overwhelmingly driven by land prices, not improvements made by the individual homeowner. See response to @RBH above.
As for LVT being kicked into long grass, that has been the case since 1909. This tax introduces the concept of the state recovering property uplift in a way that is difficult to argue with, so is a natural precursor to LVT.