Killer Arguments Against LVT, Not (125)

David Cooper of ALTER did a fairly plain vanilla article in yesterday's Guardian, making it quite clear why Land Value Tax could and should replaced all taxes, he mentioned specifically income tax, which is easiest to understand, but really he means all other taxes.

He reaped the usual rich harvest of crap, the Poor Widow Bogey was played another couple of dozen times by people who didn't realise that we've heard this about a zillion times before and that this 'problem' can be fixed with exemptions, deferments, discounts, higher State Pensions or market solutions, such as trading down or simply asking your heirs to pay the tax if they really want to inherit the house (and if they don't want to inherit it, what's the point in trying to hang on to it?).

And most anti's merrily ignored the fact the LVT would be perfectly affordable for most people because there'd be correspondingly less income tax!

I can't be bothered to link to each individual Killer Argument, and two of these are paraphrased:
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This tax may have some effect on the very wealthy, although it can be avoided by offshore companies, complex lease arrangements and all sorts of other measures.

Nope. Let's look at, er, real life, shall we?

We have something called 'Business Rates' on non-residential buildings in the UK, which is quite similar to Land Value Tax, and a lot of commercial buildings are owned by offshore companies, a lot of them even have mortgages from UK banks secured on them, and a lot of houses are owned by such offshore companies as well. Collection rates for Business Rates or Council Tax are about 98%, far, far higher than any other kind of tax.

Sure, these taxes are legally payable by the occupier, not the owner, but it comes to the same thing. There is also a scheme that if an non-resident landlord does not keep up to date with his income tax returns, the tenant or managing agent has to deduct a flat 20% income tax from the rental payments and pay that to the tax office.

Exactly the same rules would apply under LVT:

If the tax due on any land falls into arrears, the tax office then asks the tenant to pay it and to deduct it from any rent they pay. If the occupants are not the legal owners and aren't paying rent, then they are either squatters (and so get booted out) or they are in fact the true owners of the building (and would rather pay than be booted out and have the land and buildings auctioned off).

Where the land and buildings are unoccupied, the tax is in arrears and the owner is untraceable, then clearly he's lost interest and the land and buildings can be auctioned off and the balance of the sale proceeds kept to one side for twelve years in case the owner claims it.
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And don't try to lecture me about 'complex lease arrangements', this is what I do for a living.

Sure, some people will be scammed if they pay rent in advance for a long period and the freeholder takes the money and does a bunk, but most of the time, the people who claim the right to possession on the basis of a long lease will be party to the attempt to avoid tax, so the existence of the lease can be ignored.

In any event, it all balances out. Somebody who has paid a large premium for a 99-year lease has a significant interest in the land, and the freeholder's interest is worth correspondingly less, so as and when the freehold is auctioned off for non-payment, the leaseholder will be able to enfranchise for a market price, hey presto, the former leaseholder is now the freeholder, he's an owner-occupier and he will pay the LVT in future.

Simples!
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But I bought my house out of taxed income? What gives the government the right to tax it again?"

a) Two wrongs don't make a right, I accept that the transition will be a bit icky for those who lose out in the short term (i.e. those whose house is worth a very high multiple of their current income) but that's no reason for sticking with a demonstrably bad tax system.

b) People didn't pay income tax in the past because they wanted to buy a house, they paid income tax because they had to, and that money was spent on much the same things as it would have been spent on if we'd always had Land Value Tax instead of income tax, and on the whole, the LVT which people would have paid is roughly equal to the income tax, NIC, VAT, Council Tax etc. which they actually have paid (or borne).
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If we introduced LVT, then all the high income people (who now receive their UK income tax free) would buy a house abroad and commute from there."

a) That's quite clearly bollocks, it simply wouldn't happen to any great extent and would be balanced out by wealthy people from overseas (including a lot of UK tax exiles elsewhere) returning to the UK.

b) If you bought a house in France and commuted to the UK, you'd incur significant extra commuting costs which would wipe out any tax saving AND once the French tax office realised you were French resident, they'd tax you on your income anyway.

c) There are also tax havens, like the Channel Islands, Isle of Man, let's assume they charge no income tax on income from the UK. So high income people could (subject to anti-avoidance provisions) buy a house in these places (very expensive) and hopefully avoid UK income taxes anyway. How many of them do it? Not many. And if a lot of people tried to do it, this would just push house prices on those small islands through the roof, until they reach a level where it's cheaper staying in the UK and paying the LVT (remember that house prices in two countries will always adjust up or down so that tax arbitrage on a large scale is impossible).

d) Or you could move to Switzerland and go for lump sum taxation, which is a splendid scheme for foreigners, whereby they pay no income tax on their foreign income and are taxed on a notional income of five times the rent they pay (or five times the imputed rent for owner-occupiers), plus wealth tax (usually less than 1%) on a notional total wealth of a hundred times that same rent.

In other words, by and large, the tax you'd have to pay as a tax exile in Switzerland would be about eight per cent of the value of your home each year, much the same as the LVT we'd required in the UK to replace all other taxes.
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