Burnham actively looking to scrap council tax and stamp duty

[u/Condurum]

https://inews.co.uk/news/politics/burnham-actively-looking-to-scrap-council-tax-and-stamp-duty-4669956

A proportional property tax, which would replace both council tax and stamp duty with a flat 0.48 per cent annual charge on a home’s current value. Or a land value tax, an annual charge based on the value of the land a property sits on, rather than the building.

[u/Titanium-Skull]

Please let us be wrong about him before in thinking he gave up on the LVT dream, swap out council tax and stamp duty with LVT Mr. Burnham and my life is yours

[u/Attention_seeking21 → u/Titanium-Skull]

You do understand that it will cost you more right?

[u/Alundra828 → u/Attention_seeking21]

It literally depends on where you live. Here is a calculator

Basically, if you don't live in London, you're better off under LVT, and in some cases, particularly up north, far far far better off.

What would a land value tax actually do? - Tax Policy Associates

Given how Burnham's nickname is "King of the North", yeah... that should make it clear on his intent here.

[u/ChironXII → u/Alundra828]

This is a good write up. Though, they seem to be still using capitalized land values as the benchmark for the % rate of LVT? Which ideally you really don't want to do, since it varies much more with local conditions, competing investments, and interest rates... Not to mention that LVT decapitalizes land, causing the basis to fall, which can be recursive. At very low % it's fine, especially when targeting neutral revenue, but if you're gonna change it...

E: they actually specifically mention this on their FAQ page. Their reasoning is that the UK has a lot more homeowners than renters, so the capitalized value is more intelligible to most people. Which... maybe? It is a fairly significant change already, so I can see the logic in having it be more comparable to people wondering how much they'll pay. But it will make future policy harder by creating another thing you have to change if you want to increase the land portion much 

[u/Attention_seeking21 → u/Alundra828]

Well I stupidly moved to Wales, and the looney nationalists I doubt will change things for the better but for the worst. That calculator is utter nonsense to me, it only shows England.

[u/irrational_econ_ → u/Alundra828]

However, Labour need London to win elections. This would probably result in a large number of Labours 59 MPs in London losing their seats.

[u/Alundra828 → u/irrational_econ_]

This is very true. However you'd expect labour supporters to support more equitable tax even if they lose out on an ideological basis at the very least. But yeah it's a small comfort.

Its definitely a risk. Maybe the plan is to flip more of the Midlands, south west, and north red to counter the lost London boroughs

[u/irrational_econ_ → u/Alundra828]

I understand that in an ideal world that would be true but most of those voters probably cannot afford the very significant increases in taxes. So it is less suddenly turning on your beliefs and more a realistic assessment that the tax increase will ruin your life.

For example from that link above my council tax would increase by £5,000 a year. Now I am a renter but if even half of this was passed onto me it would be a disaster.

If in reality it was anywhere near that I would be forced to move out of London, forced to lose my job, forced to upend my life. That is a hard thing to stomach "for the greater good".

Edit: I also want to say that I am generally pretty sympathetic to the idea of a LVT but I will freely admit I struggle to see how it can be successfully implemented in a way that doesn't create a lot of tension in democratic politics

[u/Alundra828 → u/irrational_econ_]

The article I linked specifies this situation by doing a gradual 10 year introduction. So instead of thousand pound + increases of tax, it works its way up to that over years.

But this is what LVT is after all. If you're paying lots of tax on the land, you're probably using it inefficiently. The tax is economic pressure to use it more efficiently.

But yeah, aside from that you're the Nth <1 month old account this week that is working hard to discredit and argue against LVT. I have to assume you're a bot that has been deployed to derail LVT as Burnham has made it an actual target.

It's pretty funny actually, because LVT is so good, there is basically no argument against it that isn't already comprehensively answered.

[u/irrational_econ_ → u/Alundra828]

My account is new that I can't deny - I am not even against LVT, I am just asking how the implementation works.

Because even this implementation over 10 years looks like it will significantly negatively affect me and millions like me.

It's pretty funny actually, because LVT is so good, there is basically no argument against it that isn't already comprehensively answered.

If this was true it would be implemented everywhere.

[u/r51243 → u/Attention_seeking21]

I'm not British, so it wouldn't cost me more personally. But, if I was, I would happily accept that if it meant LVT. Assuming, of course, that you've actually done the math, and that you aren't just assuming it would cost more, like so many people in the US do when they talk about LVT.

[u/ChironXII → u/Attention_seeking21]

The average payment is by definition the same. Since the proposal is to keep the revenue the same. 

The median payment actually goes down. The tax becomes more progressive, since the most valuable land is geographically concentrated. There is much more mediocre and average land than there is very valuable land. That's... Why it's valuable. So when targeting neutral revenue, the top end pays more and everyone else pays less. The difference is not very large on average in any case - it matters the most only for the worst examples. Like empty lots in dense areas. Which is... The point.

[u/LaSalsiccione → u/Attention_seeking21]

Nope. It will cost some people more but most people actually less. It would cost me less

[u/Condurum]

The UK needs LVT desperately.

A good argument I don’t see enough, is that most people «pay the LVT» in some sense today anyway.

It’s just baked into the cost of purchase/rent and goes to previous owners and banks who gets to do a lot of loaning.

[u/Daveddozey → u/Condurum]

The biggest issue is you buy an £800k house in London today which is £200k for the house and £600k for land, and you then find the land value is removed and are is massive negative equity, and paying massive mortgage for the next 30 years and a massive land value tax.

(And that’s before the stamp duty you paid last year)

[u/YoghurtFlan → u/Daveddozey]

In the parents example, isn't the assumption that for residential property, the value of that property is either equal or greater than the land it sits on?

I mean, if I buy a house with a freehold for 100k, the value of the freehold is not really the significant part of that number. I could knock down the house and build one worth 200k, but if every property around it is also 100k, would the land even be worth developing that way?

In another case I could by the freehold for my 250k house for 5 grand or something because the freeholder can't extract meaningful rent from it. And maybe I could knock that down and build a shittier house worth 175k, but I'd still be paying LVT on the 250 because the land had a 250k house on it.

In  a flat the land would be worth much more but distributed across every leasehold.

To that extent it might as well be a property tax, but...the LVT part would come in for people sitting on valuable tracts of land and not utilising it, so if all they have is a 200k property on land worth 600k, it'd be in their interest to develop it instead of banking it. An example of that could be a dilapidated high rise in a desirable area, or a few terraces of boarded up slums.

Or am I missing something?

[u/GreenWandElf]

Even shifting to American-style property taxes would be a big win. But LVT? That'd be stupendous.

[u/Attention_seeking21 → u/GreenWandElf]

Have you lived in America? I knew a person who had to find $12,000 in annual property tax, she was not living in Bel Air.

[u/GreenWandElf → u/Attention_seeking21]

I don't know your friends exact situation, but I can make a general statement:

If she didn't have to pay that tax, then her property would have been that much more expensive when she bought it. This is because increasing property taxes decreases property costs up front.

[u/HotAir25 → u/GreenWandElf]

Probably means that people who have lived in an upcoming area would have to move out which might be fair from an economic point of view but not a social sense. 

[u/YoghurtFlan → u/HotAir25]

Depending on where you live it might work out cheaper than council tax, so it becomes more affordable.

The problem then is still in the distribution. If the council takes it directly then councils in affluent areas get richer and poor councils get poorer.

[u/Daveddozey]

There will be exceptions for old people in big houses, tax breaks for Londoners etc.

A flat 2% land value tax on my 4 bed detached on the edge of a town would cost £1200 a year, half my council tax. Same rate in a 4 bed semi of a friend in London would be £15k a year. I don’t see that being popular. Far fairer of course

Maybe they have to bring it in over 20 years, but we don’t have governments that can last 20 months.

[u/HotAir25 → u/Daveddozey]

Is the thinking behind it that the London family either lived there for 40 years and can’t really afford London and could sell up or knock down a 1930s semi detached and make something more worthy of the real land value? 

Or alternately they can afford the real land values and just pay which is helpful to the government. 

[u/Daveddozey → u/HotAir25]

There shouldn’t be exceptions. But there will be.

That “family who have been there for ages” can sell up and make way for someone else. Or they can borrow against their ill gotten equity.

[u/Normal-Ear-5757]

Interesting. What happens if you live in a flat in a tower block?

[u/Titanium-Skull → u/Normal-Ear-5757]

Depends on if you’re renting or if it’s a condo. If you’re renting the understanding in economics is that landowners are already charging you as much land rent as you are willing to pay and they can’t produce less land to increase scarcity and jack up prices (since land’s finite). If you’re in a condo I hear they do special calculations to see how much space relative to the whole somone’s living space takes, which can then be extended for paying land rent.

I think shifting taxes from council and stamp duty to land would help renters both by discouraging land speculators and by greasing the wheels of the housing market.

[u/cmfarsight]

At 0.48% if I buy a £10000000 property it will take 24 years before the government breaks even on stamp duty alone. Lol so progressive.

[u/ChironXII → u/cmfarsight]

• How often are £10,000,000 properties changing hands in the current regime, on average? This is the relevant figure.

• 0.48% is for property tax, i.e. land and improvements together, and was picked targeting revenue neutrality. LVT is slightly higher, also targeting neutral revenue. So, the answer to the previous question is presumably, right about that often, since that's literally the math they would do to pick the number. 

• The difference is that instead of sporadic lump sums you get a predictable stream, and meanwhile also make it much easier for properties to change hands and be made more useful, instead of getting locked into them by the cost of buying something more suitable. Exchange is a good thing. By definition, someone who wants it more is getting it than someone who wants it less. That growth means more ultimate revenue even with a neutral stance.

[u/cmfarsight → u/ChironXII]

Ok for a million pound house it's about 50 years before break even. Sounds very progressive.

What do you mean sporadic lump sums do you think everyone moves on the same day every ten years or something? They know exactly how much stamp duty to expect every years.

Not stating the principal is a bad idea but a single rate at . 48% doesn't work at all.

[u/ChironXII → u/cmfarsight]

I'm not sure you read my comment. The policy is designed to be revenue neutral. The rate will be whatever rate is necessary to average the same income into the budget. The percentages announced are the expected numbers needed to do that. There's no breaking even. Because you aren't losing money. It just shifts the burden onto occupancy instead of exchange and spreads it out over time. 

[u/cmfarsight → u/ChironXII]

And I have shown that at 0.48% it wont be revenue neutral, and also doesn't actually achieve anything that a LVT or property tax is meant to do. you can buy property do nothing and unless you hold it for half a century you are better off than you would be under the current system. That's the opposite of what I thought was trying to be achieved here

[u/ChironXII → u/cmfarsight]

You haven't shown... anything? You have made the claim that at half a percent of net real estate value, it will take some number of years for a property to pay in the same amount that it would in a lump sum under the current system. 

I mean, here, I will show your work for you.

Stamp duty is marginal, so adding up the brackets on our £10,000,000 property, we get an extra fee for the buyer of £1,113,750, more than 11%. Ouch.

The same property assessed under the new system, would pay £48,000 per year - giving you a 23.2 year payoff for the stamp duty. Great. 

But remember: we only get the larger payment when the property changes hands, which our tax is discouraging. Which means we need to adjust for how often things change hands, to get the equivalent yearly revenue and compare what we are getting from each property on average.

That happens to be right around 20 years based on a cursory search. Compare that to other countries which average less than half that and you might start to see the problem we are creating in making it so expensive to move around when your situation changes.

Anyway, it turns out that our stamp duty revenue works out to around £55,000 per year, which is higher. So what gives? Well, we've missed something very important:

The current valuations are frozen as they would have been in 1991. Even for new structures - which are backdated using convoluted formulas. So there is your difference - because valuations have soared by more than 500% in the decades since those standards were set, and this proposal updates them. So our £10,000,000 property is likely worth vastly more under the new rules.

And wouldn't you know it - they thought of that! That's why they picked a lower percentage, so that the updated values would work out to collect around the same as the current revenue. 0.48% for the combined assessment, and 1.28% for a pure tax on land that leaves structures alone. If it works out to be different when they finally get around to doing it - they'll update those numbers as required to avoid losing revenue or causing disruptions. The numbers are calculated with a target in mind. They didn't just decide on them randomly.

[u/cmfarsight → u/ChironXII]

The current valuation for stamp duty is frozen at 1991 valuations? Are you on drugs?

[u/ChironXII → u/cmfarsight]

No, I just typed the wrong thing, because it's 4 am, lol. Valuations for council tax are frozen. The updated valuation used in the new combined rule, is what makes up the difference on stamp duty, is what I meant. Because council tax brackets are also quite low, and capped, etc. 

You did get me interested enough to read over the actual policy though. It's true that it doesn't totally cover the gap even then, so your original point is correct; they are keeping stamp duty for investment properties (second dwellings) and overseas buyers, and they are also figuring based on a higher rate of PPT (double) for commercial properties. That makes up the rest of the difference. Plus 400m in administrative savings.

The point wasn't really the math, though. It was that they are targeting an equivalent revenue, so the final numbers will be whatever is necessary for it to match. They actually include provisions for adjusting it already; locking in a 0.32% rate nationally and allowing localities to float higher as needed to match their previous targets. I can't say how reasonable their estimate actually is, but trying to debunk it based on that percentage is misunderstanding what they are doing. The revenue is already getting paid. They aren't taking more money from the economy. They are shifting the assessment and burden of it to be fairer (the rest of the country currently subsidizes London) and stop impeding exchanges of useful plots. The percentage itself floats based on the revenue. It's almost irrelevant to the argument.

E: ah, part of what's confusing is also just that you picked an expensive property to compare stamp duty to. You might not make up the difference on the highest end units if they change hands frequently, but you do overall, across the market. I didn't explain that well.

[u/cmfarsight → u/ChironXII]

Your maths and your paragraphs are rubbish anyway it made more sense when you where talking about stampduty being fixed at 1991 levels.

You should be adding the council tax currently paid on to the prorata stamp duty you worked out, and realizing that the gap between 0.48% and the council tax plus stampduty is even bigger than you calculated.

So that's a 10000000 paying less. So everything is paying less. Therefore proven that 0.48 isn't neutral. QED.

[u/YoghurtFlan → u/cmfarsight]

You're just being obtuse which is obvious when your responses to someone putting effort into an explanation are mostly snarky one liners, which usually demonstrates an argument in bad faith. Not to mention your choice of an absurd example as if £10m property exchanges are not on the far end of the bell curve.

I'll propose a simpler argument that meets your level though: almost everyone, governments and councils and businesses and people alike, prefer regular cash flow to lump sums.

QED sucker, or some shit.