Wednesday, 29 February 2012

Design your own LVT system

You can change the figures in the boxes and enter your own by clicking "Click to edit". The grey cells are results/output cells.

30 comments:

Kj said...

Smooth. What's next in this series of DIY georgism?

Mark Wadsworth said...

Kj, next step is to merge it with the tax/benefit spreadsheet, so that we can do 'better off/worse off' comparisons. People like Comrade Fuckov might find out that they and their families would end up better off, who knows?

Kj said...

Maybe also allow for reduction in government expenditure?

Derek said...

Gosh! Basing that on my old home in Arbroath and nothing but Land Value Tax takes my tax bill down to £8,790. And that's before you include any CI that I might be entitled to!

Mark Wadsworth said...

Kj, the UK government spends £120 billion a year more than it raises in tax. So I'm assuming that spending is reduced by £120 billion a year anyway. I've done a post on "design your own budget' but without a spreadsheet.

D, exactly. What puzzles me is that the Homeys say that everybody will be worse off, most people will be better off, and most of them by quite a lot.

Physiocrat said...

Interesting.

I halved NI and IT, ditched UBR, CGT and Corporation Tax. That would be realistic by year 3 of LVT.

My old house in Brighton would have been subject to about 60% of the present CT. The flat I rent out comes out at around 80%. I had a house in Stoke Newington which would have been subject to a bit more but anyone who was working would have been much better off, and probably most pensioners too.

formertory said...

Crikey. Decreasing all other taxes to nil, my "raw" LVT is slightly greater than our total household income.

I might have to reconsider the virtues of Home Owner Ism :-))

Bayard said...

Even leaving in Income tax and Corp tax gives me an LVT bill of five times my annual income and one-fifth of the value of my house.

Mark Wadsworth said...

Phys, I'm surprised that LVT would be less than CT for houses or flats Down South.

FT, I guess you have a high house-price-to-income ratio, i.e. you earn £50,000 and your house is worth approx. £700,000?

B, if your house-price-to-income ratio is 25, then (on a static basis) you'd be a lot worse off.

Having done a bit more work on this, the cut-off point is a ratio of about eight. The average is about four or five. Most people are on a ratio of less than eight, so most people would be better off (on a static basis).

Lola said...

As you'd expect of me I set every other tax to zero. That made the LVT a bit eye watering, but I estimate quite a bit less than the total tax we already pay. And, I am absolutely sure I could easily increase my income if all the other taxes were scrapped (and, it goes without saying, along with all the other stupid reg-yew-lay-shun).

I see no receivable for the bank asset tax?

And I see that you are going to do one for the other side of the equation - CI.

So, I am sold. Where do I sign?

Lola said...

Thinking about it, you could do another column where you put you earnings in at the top and it calculates you individual share of the current tax take?

Mark Wadsworth said...

L, you could up your income, or just sell off half your garden to a farmer and then rent it back for a few hundred quid.

I did not include booze, fags, fuel duty as I'd leave those as they are for the time being. Neither did I include bank asset tax of £2.7 billion (current rate 0.05%, I think) as this will be hiked significantly when I'm in charge to raise about £30 billion a year.

formertory said...

Just for a larf, using your SW19 postcode and my land area of 3,000 yd^2, LVT would be £533,890.....

:-)

Mark Wadsworth said...

FT, but under current rules, only a couple of oligarchs could afford to buy such a huge garden in SW19, and those couple of oligarchs can easily afford £500,000 a year in tax

Turning that on its head, anybody who currently earns £1 million a year (of which there are thousands or even tens of thousands) is already paying £500,000 a year in tax.

formertory said...

Oh, I know - it just seemed amusing, based on being so extraordinarily far away from anything I can call reality!

Mark Wadsworth said...

FT, I checked on Rightmove, there is a splendid mansion in SW19, with a plot size of about one acre.

The asking price is £13 million, so we'd expect the annual LVT bill (under full-on LVT) to be about £1 million a year, if it's 'only' £500,000 then so be it.

Derek said...

Sounds to me like Bayard and FormerTory should consider selling up, throwing the proceeds into some investments with a decent ROI and using the resulting income to pay the rent on something even bigger and better than the properties they currently own. Even under the current tax regime, I think they might come out ahead!

Bayard said...

Derek, I intend to sell up, as soon as I have finished doing this place up, but with my income, it's slow work. It's the bloody great garden that's the problem. I hate gardening, but a potential purchaser might think it's great.

Mark Wadsworth said...

D, it's not really for us to advise people on what to do (despite I broke my own rule by telling Lola what to do), but L, B and FT all appear to have humungous gardens.

B, that's the thing with gardens, is there not some optimum size where there's no advantage in it being bigger? My previous back garden was seventy two square yards (normal by inner London standards) and it was almost big enough; our current back (very outer London)garden is about three hundred square yards, and frankly it is slightly bigger than what we (as an average family) really need. I certainly wouldn't pay extra for anything bigger.

So can't you sell off a large chunk of the garden and just do up the bit round the house? Sure, a big house needs a bigger garden than a small house so that the whole thing stays in proportion, but why do you need to do more than to flatten it and lay a nice lawn?

Bayard said...

"So can't you sell off a large chunk of the garden"

No, because my only neighbours are the other side of my house to my garden and they have a large enough garden anyway. My favourite garden was the one in my London house, which was 25 sq yards.

Mark Wadsworth said...

B, can you draw a map to illustrate that? A normal house has two side neighbours and one back neighbour.

Bayard said...

M, I live in the middle of the countryside. In front of my house is the garden. Either side of my house is fields. Behind my house is what used to be a farm building, but was sold separately to my house and is now a holiday let. Behind my neighbours and in front of my garden is more fields. Quite a lot of my "garden" is bramble patches and trees. I suppose, if LVT came in, I could plant up the bramble patches with trees and have it all classed as woodland, come to some arrangement with the LA about the track, which other people have a right of way over anyway, and that would be more than 50% gone.

Mark Wadsworth said...

B, aha, thanks.

LVT works best in urban areas where it's clear what's actually somebody's garden, and there is usually a clear line where "fields" start.

With houses dotted around in the countryside, like a proper farmhouse, some of it is "garden" and some of it is "fields" but there is no such clear dividing line.

So we have to invent some rule that an area of (say) five times the footprint of the house is deemed to be garden (taxed at normal rates for that sector) and everything outside that counts as agricultural.

The track leading up to the house is usually worthless.

Does that help?

Bayard said...

Sounds a good idea, but if this was a serious proposal, I would be sensing the lawyers beginning to rub their hands....

Mark Wadsworth said...

B, this sort of thing is established practice in tax law.

As we know, a gain on selling your principal private residence is exempt from CGT, fair enough. With most urban homes and gardens, it's perfectly clear what your home and garden is, but in the countryside it is far from clear.

There is a string of cases where people argue that certain outbuildings or a very large area (usually sold to a developer) all counted as "main residence".

So there is a rule of thumb that up to one acre/half a hectare will usually be accepted as your "garden" and CGT exempt; there is also a rule that if you own a grand mansion/castle with proper ornamental gardens "befitting the character of the house" then that counts as "garden" (and hence is exempt) even if it is larger than one acre.

With Agricultural Property Relief for Inheritance Tax, the argument is the other way round: people say that the "garden" (not exempt from IHT) is very small and that the disputed area is "fields" (exempt from IHT).

So in the spirit of simplification, we just apply a multiple of the footprint of the house (five? ten?) and that is the end of that. Think about it, when a farmer sells off a farmhouse to some rich townies, he will bung in a certain amount of land as well, there is a minimum amount which the rich townies expect to see as "garden", and this is our answer.

Kj said...

Taxation should reflect the degree of usage and exclusion, so it should be clear that an estate maintaining a parkland garden over 50 acres should be taxed for 50 acres, while if the same estate were to leave 40 acres as woodland, with no restriction on public access, it should be classified and taxed as such. I'm sure this won't necessarily be single paragraph legislation, but your multiple seems like a good rule of thumb for smaller properties that would be too expensive to review case-by-case. AFAIC there's only use for four different classifications of land; 1.land you can build on/exclude, maintan a garden, commercial property 2.woodland, 3.farmland and 4.public land, under which roads, parks and railroads would belong.

Mark Wadsworth said...

Kj, you are getting really good at this:

"if the same estate were to leave 40 acres as woodland, with no restriction on public access, it should be classified and taxed as such"

Correct. The key is "no restrictions on public access". Which helps us boil your list down to three possibles:

1. Land you can build on/exclude, maintan a garden, commercial property and government-owned buildings. Includes railways, actually, because railway company can charge you for access.

2. Farmland and woodland from which public is excluded. Some land owned by farmers at the edges of rivers which they are not allowed to farm, which is of course exempt from LVT.

3. Truly public/common land - parks, roads, pavements, public beaches, rights of way across fields, and any forest where people can go walking, rivers you can row up and down for free etc (forestry land is so low value as makes no difference, plus it's great for the air quality, places for little animals to hide, looks nice from a distance etc).

"I'm sure this won't necessarily be single paragraph legislation"

That's the funny thing. In UK tax law there is one single paragraph saying how commercial premises are to be valued, it's probably been in place in one form or another since 1601. The rest is guidelines, haggling, rules of thumb, common sense etc.

So I'm sure we can cover the basic rules in about three or four pages.

Kj said...

Agreed. Speaking of legislative history, has business rates always been in more or less the current form? You had domestic rates as well right, was this similar to BR?

Mark Wadsworth said...

Kj, the short answer to your questions is yes.

Kj said...

got it.