Thursday, 18 February 2016

Killer Arguments Against LVT, Not (383)

An argument against under a broadly pro-LVT article at the Institute for Economic Affairs:

Take a leasehold block of flats. The leaseholders must pay to the landlord ground rent and service charge every year. Usually, the ground rent is token and is set by the lease agreement. Along comes LVT. The landlord must now pay to the governmentt each year an amount far in excess of the receivable ground rent. The choices open to the landlord are…

Having started off with an entirely unrealistic assumption about LVT is apportioned, he then wanders off into idle speculation as to what might happen.

I explained on the kln blog:

The connoisseur then advances this argument, which means that they have ignored Rule One, that the tax is on the annual site premium or ground rent.

With blocks of flats, we often find that there is a freehold and several layers of leaseholds before we get to the real leasehold, the one that gives exclusive possession in exchange for the next … years in exchange for payment of ground rent to the next leaseholder up, who pays ground rent to the leaseholder above him all the way up to the freeholder, who just collects.

The rental value and hence site premium of the leasehold flats (level 1) is easily established, and if they have to pay £100 ground rent each to their immediate superior leaseholder (level 2), then the level 1 LVT assessments are knocked down by £100 each.

The leaseholder at level 2 thus has [number of flats] x £100 ground rent = income and pays [random amount of ground rent] to the leaseholder at level 3. If the level 2 leaseholder receives more than he gets, the net income is what is liable to tax (at up to 100%). If a leaseholder decides it's not worth the hassle of collecting it, merely to pay most or all of it over in LVT, then he is free to waive it, and the LVT assessments on the flats go up by £100 a year each.


Lola said...

Yes. Long leaseholds on flats in blocks are a bit free-holder-ish. So the LVT would be charged on the leaseholder less the ground rent reversion he pays to the freeholder. The Freeholder then pays LVT as an annual percentage of the capitalised value of the ground rent reversions.

What's difficult about that?

mombers said...

How did this work under Domestic Rates and Schedule A (aka the good old days)?

Mark Wadsworth said...

L, if you do it on the rental value it is even easier. What's the rental value of the freehold? it's the ground rent income.

M, good question, nobody knows any more, there's hardly anything on Dom Rates as it ended a few years per-internet.

DBC Reed said...

Yes and all the staff who administered the Rates and Schedule A have pretty well died off, so their knowledge is lost.
@MW John McDonnell said on Tuesday at the LSE that the country needs "infrastructure which pays for itself by expanding economic activity and raising tax revenues" which pretty well defines LVT. He also said that the Labour leadership hadn't ruled out Basic Income. So the sign is being projected into the sky calling for the aid of LVT Man!

Derek said...

Excellent news about John McD, DBCR. With luck this will reduce the spinning in Keir Hardie's grave to a rate where it is once again safe to approach!

Mark Wadsworth said...

DBC, yes, let's hope that John McD can sell both ideas properly.

Bayard said...

He'll be up against an unholy alliance of Landowners and The Envious.