Although the proposals in the report Land for the Many have not yet been formally adopted by the Labour Party, they will be considered for inclusion in the party manifesto for the next general election. With that in mind, we thought our readers might find it helpful to have a summary of the tax proposals contained in the report.
Describing the UK’s current system of residential property taxation as ‘regressive, arbitrary and economically inefficient’, the report proposes changes which are intended to:
- discourage the use of homes for speculation and rent extraction, and thereby help to stabilise land prices;
- reduce the amount of unearned windfall gains that are privately captured, and make those wealth increases available to cover the health and welfare costs of an ageing society;
- reduce the level of taxation on the majority of households, and boost disposable incomes for the bottom half of the income distribution;
- prompt the more efficient use of the housing stock, by reducing the number of homes left vacant or empty, and encouraging people to downsize where possible.
Tax-by-tax, here are the proposals. It should be noted that the report’s authors specifically recognise that the devolution of taxes, particularly to Scotland and Wales, means that some of their proposals will have to be varied for adoption outside England.
Council tax to be replaced with a progressive property tax
A Labour government should replace the council tax with a progressive property tax. This will be payable by owners, not tenants. The valuation of properties for tax purposes would be updated annually. Rates of tax would be set nationally rather than locally. Empty homes and second homes would automatically be taxed at a higher rate. The least valuable 10 per cent of properties in each region could be tax free. Progressively higher tax rates would apply to the top four deciles of property by value. The report also recommends a surcharge for all properties owned by those who are not resident in the UK for tax purposes.
Stamp duty land tax to be restricted
Stamp duty land tax will be phased out for people buying homes to live in themselves. It would remain in place for dwellings purchased by non-doms, companies, and for all second homes and investment properties.
Capital gains tax
It is proposed that capital gains tax on second homes and investment properties should be increased. While the possibility is recognised, there seems to be no intention to abolish the current capital gains tax exemption for main residences.
Inheritance tax replaced with lifetime gifts tax
Inheritance tax will be abolished and replaced with a lifetime gifts tax levied on the recipient at income tax rates. Equity withdrawals are seen as ‘a key means of avoiding inheritance tax’ and will also be taxed.
Business rates to be replaced with a land value tax
This tax will be calculated on the basis of the rental value of local commercial land and will include both vacant and derelict land.
To ensure that farmland is reserved for farmers and to prevent it being used for tax avoidance and speculation, the report proposes that a new English Land Commission should undertake a review of tax exemptions given to landowners. The intention would be to restrain these fiscal privileges without harming family farms. The report recommends that the removal of similar tax exemptions on woodlands and forestry should also be considered. Farmland might also be subject to the proposed land value tax.
Property owned by offshore companies
‘In the interests of transparency, and to ensure that land is not used for financial speculation, tax avoidance or money laundering’ the report recommends an offshore company property tax payable by companies based, or beneficially owned, in secrecy jurisdictions. This will require greater disclosure and transparency. The report also recommends an increase in the annual enveloped property tax and the removal of the exemption for properties under £500,000.