Sunday, 10 November 2013

"UK property taxes highest in developed world, says think tank"

Policy Exchange can say anything they like, knowing it will go down well with the Homeys at the Mailexpressgraph, but it was also faithfully trotted out in The Guardian.

Even if it were true (which it isn't) this is completely irrelevant to anything anyway, this is all just part of the anti-LVT agenda of course (even though the full report explains all the arguments in favour of LVT, it then basically says "But Poor Widows won't like it, so we can't do it") , but as far as residential is concerned, it is simply not true.

1. How they arrived at this figure

PE add up the following taxes and say that they make 4.1% of GDP, higher than any other OECD country (Hong Kong, Taiwan are not OECD countries). Unlike them, I will use up-to-date gross figures for the UK, not a mish mash of various years gross/net figures for England/UK at random.

Business Rates - £27 bn
Council Tax - £27 bn
Stamp Duty - £7 bn
Inheritance Tax - £1 bn (they take one-third of £3.3 bn as relating to residential land and buildings)
Capital Gains Tax - £2 bn bn (they take one-third of £5 bn as relating to residential land and buildings)
s106/Community Infrastructure Levy £1 bn

That's £67 bn in total, quite possibly 4.1% of GDP.

For whatever reason, the UK has something very close to LVT, being Business Rates on commercial land and buildings. It needs tweaks, but you can answer most KLNs by simply referring the Homey to the real life example of Business Rates.

2. Let's split this into residential and commercial

Their full report is in the context of home building, homeownership etc, so how much of those taxes relate to residential rather than commercial?

Business Rates - none
Council Tax - £27 bn
Stamp Duty - £5 bn
Inheritance Tax - £1 bn
Capital Gains Tax - £2 bn
s106/CIL - none

That's now down to £30 billion.

3. And how much of that is actual 'property tax'?

Is Council Tax really a property tax? That would suggest that the amount you pay is somehow related to the value of the property you own. As it happens, the large bulk of Council Tax is the Poll Tax element.

The Poll Tax element is about £720 per household (a single adult in a Band A home has to pay on average £720 a year = Band D average £1,444 x 6/9 less 25% discount). It is only the amount above that which can be said to be "property tax".

27 million households x £720 = £19 bn Poll Tax
£27 bn Council Tax minus £19 bn = £8 bn property tax.

And how savage is that property tax element? About 0.2% of the first £1 million of the value of a home, i.e. a £1 million home will probably be in Bands G or H, and pay about £3,000 in council tax (depending on where it is in the country). If we divide that £8 bn by the total selling price of UK homes, we get an even lower figure.

And that 0.2%, which is a fixed amount and does not change if the value of a home changes, simply is not big enough to have any impact on people's behaviour.

As the report explains, in the USA and Canada, the property tax can be up to 1% of the value of a home with no upper limit.

4. So let's run that total again

Putting it all together, here's how much tax is paid/collected on the basis of the value of residential:

Business Rates - none
Council Tax - £8 bn
SDLT - £5 bn
IHT - £1 bn
CGT - £2 bn
s106/CIL - none

Ah… now we are down to £16 bn, or about 1% of GDP, a quarter as much as Policy Exchange said and somewhere in the middle of the field, internationally.


Bayard said...

Yet another report where I suspect they started with the conclusions and worked backwards to justify them.

Mark Wadsworth said...

B, no, the Homeys and spokesmen for the land bankers wouldn't do that, would they? Surely not?

Bayard said...

A thought occurred to me today: If the UK has the highest land taxes in the OECD, why are all these foreigners buying up property in London and leaving it empty? Who's got it wrong, Policy Exchange or thousands of very rich people who can afford the best financial advice? Err, let me see...

Mark Wadsworth said...

B, I think for commercial land and buildings, we probably do have the highest taxes in the world, foreigners are buying those up as well, but not leaving them empty.

DBC Reed said...

Brilliant analysis by MW. Really needs to be over on Tim Worstall's site where, despite being a land taxer, Worstofall is always claiming that UK homeowners pay much more tax than anywhere else.

Mark Wadsworth said...

DBC, thanks but it's not brilliant is it?

It would have taken anybody five or ten minutes to Google this together.

So clearly PE took the decision to start with the answer and work backwards, instead of spending five or ten minutes Googling.

Bayard said...

It probably went something like this:

Home-ownerist bigwig: Is that the Policy Exchange? I need a piece saying that the UK has the highest land taxes in the world.
Policy Exchange: But it doesn't.
HOB: If you want the fee, you'll have to think of some reasons why it does.
PE: How about the highest in the OECD? That's a bit easier as it leaves out places like Hong Kong and it sounds pretty much the same.
HOB: Yup OK, same fee as the last one you did for me?
PE: Fine.

Robin Smith said...

Bloody hell, I live alone in property with £15,000 rental value so would be much better off with a maggie poll tax. Cunts!