... in Northern Ireland. Spotter's badge to Paul Lockett for this one.
As background, as we all well know by now, in Northern Ireland, they never went through the rigmarole of replacing Domestic Rates with the Community Charge ('Poll Tax') and then replacing that with Council Tax like in the rest of the UK. Instead they revalued all residential land and buildings as at 1 January 2005 and replaced the old Domestic Rates with a fiscally neutral 'Progressive Property Tax' of about 0.7% of the capital value as at that date.
So this is pretty similar to what I have been suggesting all along. Another thing which I have been suggesting all along is to alleviate things for pensioners (who are the biggest stumbling block with any kind of land tax reforms) by allowing them to defer the tax to be rolled up and repaid on death or a subsequent sale.
Lo and behold, from the BBC (3/3/10):
Pensioners in Northern Ireland are to be able to defer rate bills until they die or sell their properties.
New legislation, outlined by Finance Minister Sammy Wilson, will allow those who are struggling to meet mounting bills in retirement will benefit most. A reduced rate of interest will be charged. Assembly members backed the law, which comes into effect in April.
"Deferment is not a new relief or allowance and importantly does not represent free money," Mr Wilson said, "It will however allow pensioners to roll up their rate bills at a concessionary rate of interest, generally until their death or the sale of the property."
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Of course, you might wonder why capital values for NI Domestic Rates purposes are capped at £400,000, but you have to remember that the Inheritance Tax threshold is currently £325,000 (the tax on the excess is 40%, but that is only paid once a lifetime, i.e. on death) and it would be a tad unfair to make the 'top slice' of the value of more expensive homes liable to both Domestic Rates and to Inheritance Tax.
But wouldn't it be better and simpler to scrap Inheritance Tax and simultaneously abandon the £400,000 cap, which would mean increasing the rate to about 0.8% to make up lost IHT receipts? To soften the blow of an 0.1% increase for people in cheaper houses, you could also scrap the TV licence fee and increase the rate to 0.9%, and having gone that far, and assuming that part of the purpose of such a tax is to encourage 'right sizing', why clobber people who do the decent thing with Stamp Duty Land Tax? Again, you could scrap that and make up the lost receipts by hiking the rate to a nice, round 1%, chucking in Capital Gains Tax and Insurance Premium Tax for good measure.
Job done.
One good, simple tax to replace six complicated bad ones with very few winners or losers. For sure, the purists say you should tax land values not buildings, but because a tax is always borne by the least elastic factor, a tax on buildings always acts like a tax on the land element rather than the building element, and in any event, any residual tax that falls on the building can be compensated for by child benefit, welfare and pension payments, a generous personal allowance for income tax etc.
Put On Your Big Boy Pants, Maybe?
2 hours ago
11 comments:
One of the odder things I've learnt about the Irish Republic as a result of its woes is that they have no equivalent of Rates or Council Tax - no property tax at all. Weird or wot?
D, indeed. Which may have contributed towards them having an even bigger house price bubble than we did.
Aren't they in the process of putting one in now?
SW, I suspect that the idea (which would have been about half as much as Council Tax is here) was down to the Greens (who were rather bizarrely a junior partner in the coalition).
Seeing as elections are coming up and Ireland is even more Home-Owner-Ist then here, it's unlike to happen.
Dear Mr Wadsworth
Next up - scrap income tax.
This has the added bonus of removing an excuse for the state to pry into an area of private concern into which it has not business prying.
DP
DP, in principle yes, but in practice, VAT is the worst tax and Employer's NIC the second worst tax, so they'd have to go next.
A flat rate income tax with no tax breaks or special exemptions can be deducted at source from wages or bank interest etc, so not much actually needs to be reported on an individual level.
"A flat rate income tax with no tax breaks or special exemptions can be deducted at source from wages or bank interest etc, so not much actually needs to be reported on an individual level."
Or to extend from this, if were to have a flat rate of income tax of say 32% on ALL forms of income which is deducted at source and instead of a personal allowance we paid out a basic citizen's income it would completely abolish the need for a self assessment tax return for a significant proportion of those who currently must complete one each year.
It would drastically simplify payroll which as it happens, not 2 minutes ago I just had a client asking "why the hell do I have to give this guy a tax rebate when he's only worked for me for 1 day"
Tax codes are the stupidest idea ever thought up. Initially when you think of it from a practicality point of view the "why give the government my money just for them to give it me back" kind of makes sense. When you look into the issue from another perspective however, it costs more to administrate the system as it currently works than it would to simply take your money at a flat % and dish out a citizen's income, the need to take your money at all is increased by having that tax free allowance instead of taking with one hand to give back with the other.
Now under the current system, benefits in kind are treated as income and coded into the tax code. This is also stupid because in general employer's will have their accounts prepared by an accountant, the best way to deal with benefits in kind therefore would be to make them not "allowable expenditure" for tax purposed on the employer and the employer then offers a lower salary which when taxed at the flat rate % comes to roughly the same NET pay. Now the Tories are supposed to be in favour of the private sector, this change to the system would throw the accountancy sector additional fees whilst saving taxpayers money at the same time.
SW, amen to all that.
" the best way to deal with benefits in kind therefore would be to make them not "allowable expenditure" for tax purposed on the employer and the employer then offers a lower salary which when taxed at the flat rate % comes to roughly the same NET pay."
Exactly. This is how a lot of other countries do it, and this is how we deal with sole trader or partners' private expenses which go through accounts.
With a flat rate of income tax/corporation tax, the extra CT paid by employer would be exactly equal to the PAYE not paid by employee, so it all comes out in the wash.
Even better, with a flat rate of income tax/corporation tax, there would be no need for separate PAYE and corporation tax systems: the business just does its accounts as normal, adds back (net) salaries paid out and employee BiK and sends off a cheque for (say) 30% times the resulting figure.
This has the added bonus that there is automatic loss relief: if your company or business have income £100, external costs £40, wages £70, accounts loss £10, then the taxable amount would be £60 (i.e. £70 salaries minus £10 accounts loss) and the total tax due is £18.
The workers have been paid £49 net, of course, so the business owner ends up £7 out of pocket, which is better than ending up £10 out of pocket with a £10 loss to carry forward.
"The workers have been paid £49 net, of course, so the business owner ends up £7 out of pocket, which is better than ending up £10 out of pocket with a £10 loss to carry forward."
Losses carried forward get on my fucking nerves. If you make a taxable trading loss in the year you can offset against ALL types of income, carrying them backwards the same but carrying forwards only the same type what the shit is that? Its like they don't want these businesses to pick back up again and would sooner screw them over by taxing them again when they're not in a comfortable position to be taxed!!
SW, it's quite simple. Within a company, trade losses can be carried forward against future profits from the same trade or carried back to a period in which the trade was being carried out and offset against any other profits of that period, but deficits on non-trade loan relationships can be offset against non-trade loan relationship profits or capital gains of future periods, whereas excess management expenses or Schedule A losses can be carried forward and offset against any income or profits. Contrast that with a capital loss which can be only carried forward and offset against future capital gains. Then you have the group loss surrender rules, which operate sideways and under some circumstances backwards but usually not diagonally forwards into a different company within the same 75% group but even though e.g. a non-trade LR deficit cannot be sideways relieved against a future trade profits in another company, a capital gain in the other company can be shifted sideways from the other company into the one with the NTLRD carried forward. It's quite easy, all it needs it decades of experience and you still get it wrong.
This has the added bonus that there is automatic loss relief: if your company or business have income £100, external costs £40, wages £70, accounts loss £10, then the taxable amount would be £60 (i.e. £70 salaries minus £10 accounts loss) and the total tax due is £18.
The workers have been paid £49 net, of course, so the business owner ends up £7 out of pocket, which is better than ending up £10 out of pocket with a £10 loss to carry forward.
This is an old post, but it´s quite a good idea actually. You could do this as a separate change without changing to a flat tax as well. In the system where I´m at, PAYE is paid throughout the tax year, while CT is in arrears, and while PAYE is divided into a state and local govt. portion, CT is all state. But we could apply a system where you get the loss relief on CT on the subsequent years state portion of PAYE. It´d be an improvement for cash-flow on startups this.
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