Today’s major new report by the Independent Think Tank for Liberal Conservatism was published by the Tax Commission. This report is called Home truths: Options to Reform Residential Property Taxes In England. It proposes to replace England’s distortive and regressive property tax with an Annual Property Tax (APPT). This will help to reach government goals of leveling out and delivering net zero.
Paul Cheshire, an academic leader, and Christian Hilber are the authors of this report. It ranks and evaluates variations of two main options for replacing Stamp Duty, (SDLT), or Council Tax (CT), an Annual Proportional Property Tax (APPT), and Land Value Tax (LVT), respectively, against various economic and political criteria. These include revenue-raising; equity; simplicity and incentives for building homes; automatic stabilization; public acceptance; ease-of-transition; and alignment to key government objectives. Linkedin
Supported by top figures from all parliamentary party political parties, the report concludes that an APPT variant would be most beneficial on both economic as well as political grounds in order to replace the flawed English property-tax system of SDLT/CT.
Ryan Shorthouse (Chair Executive at Bright Blue) commented:
“The current system of property taxation in England is distortive and regressive. It offers significant advantages to people who have or are part of large families and it is very punishing for those with less.
That would be possible if there was an annual proportionate property income tax system. This would make property tax liabilities more manageable for those who come from modest backgrounds or areas.
If the Government wants to raise the standard of living in the country, then it should focus on reforming taxation and not spending. The Government should now introduce hard, radical reforms in support of people and places that have struggled for decades. If it doesn’t, it will have missed an ideal opportunity to really make an impact in those communities.
“It is becoming increasingly difficult for politicians to ignore the argument for a proportional land tax. Fairer Share already showed that 76% of households across England would be better off with PPT. Bright Blue’s contribution is a strong argument in favor of reform. It makes clear that a new income tax would be much fairer than the current system. Annual revaluations should not hinder implementation.
As more evidence supports PPT, it shouldn’t surprise that respected political figures from across the Conservatives (Labor and Liberal Democrats) are backing this important policy change. We are looking forward to seeing more politicians support the drive tax homes fairly, in order to make an impact on people’s daily lives.
These are the policies that will replace the English property-tax system.
Recommendation number one: An annual proportionate, property tax (APPT), on current capital value houses. Property owners with properties above PS50,000 are exempt from tax and there is a 25% surcharge for those who own second homes.
The owner would be responsible for the payment, and not the occupants. A single, low-tax threshold of PS50,000 should be implemented. This threshold will gradually rise in line with house prices. An additional 25% should be added for second homes.
District Valuer Services should calculate the annual APPT by using statistical modeling and annual property valuations. There should be a rolling window of three or five years to smooth out annual changes. This method is practical and inexpensive due to advancements in data availability from Land Registry and modeling methods. At least 15 countries have adopted a modeling-based method for property valuations. An appeals process should exist so that house owners can challenge their valuations.
To facilitate the transition to a different system, the APPT should not be phased in. A provision should exist that defers tax payments to ‘asset rich and cash poor individuals until the time when properties are sold or inheritances take place.
Recommendation Two: The national government should and can impose separate APPT rates.
A portion of the APPT revenues should be given to the national government, and a portion should go to the LAs. The national government’s share should cover the loss of national revenues due to the abolishment of SDLT. This revenue-neutral annual tax rate is, after 2019 SLDT receptions, 0.11% primary homes and 0.14-second homes
Local authorities should be able to decide their local tax rates independent of the national government. This will allow them to keep all of their revenue to spend on local services, such as local refuse collection, recycling, transportation infrastructure and services, maintenance, and upkeep of local parks, libraries, and museums. This will provide tax incentives at local levels to encourage new residential development and expand the number of local services.
Recommendation Three: Green offsets can be applied to APPT to increase energy efficiency.
The APPT must offer house owners an allowance against their liability for more energy-efficient homes and an extra weighting for liability for less energy-efficient ones. To offer APPT liability allowances for more energy-efficient homes, the existing system for Energy Performance Certificates (EPCs), must be expanded. There would be no application, unlike the Green Deal and Green Homes Grant. The rates could also be adjusted to reflect the progress made in reducing CO2 emissions. Facebook
Recommendation Four: A Development Levy at 20% of the realized value of newly constructed homes.
This Development Levy should also be levied on property developers to cover the market value of new developments. This proposal has many similarities to the Infrastructure Levy, or IL, as proposed in the Ministry of Housing, Communities, Local Government’s White Paper. This will replace the current taxation of property developers, which consists of Section 106 and Community Infrastructure Levy. With the Development Levy, both rates and their spending will need to be consistent across the country.
The local authorities would be able to use the revenue for local infrastructure, local public service, and social housing. Local communities would be transparently compensated if they accept new development. This would reduce the current binding restriction on building and the power that ‘NIMBYism’ has.
Five scenarios are presented in the report to examine the distributional implications for the central reform that would replace CT and SDLT (in England) with an APPT.
National APPT to Replace SDLT + Local APPT Set at a Unified rate All LAs are producing the same amount of total revenue as CT and have the same income.
National APPT replaces SDLT + local.APPT is set at a rate per LA so that the local.APPT yields The same revenue for every LAAs CT does currently.
To replace SDLT and local APPT, the National APPT is set at a rate in every LA. In those LAs where there is a higher median house price than the overall national median (or ‘property weather LAs), the APPT is to yield 10%Learn more Income that the CT generates is greater than it currently does and those where the median home price is lower in English (‘property-poor LAs) are expected to produce 10%You can get less Increased revenue than currently.
National APPT replaces SDLT + local.APPT rate set in property richer LAs so that 20%Learn more Income and property in poorer LAs 20 % less Increased revenue than currently.
National APPT replaces SDLT + local.APPT rate set in property richer LAs to yield 10 %You can get less Revenue and in property poorer LAs 10%Learn more increased revenue than currently.
The report estimates distributional implications in two different ways. The report estimates the distributional implications in two ways. First, it shows scenario 1’s English LAs, which show the ratio of expected property tax that a typical English resident would pay lower overall, and where a typical English resident might pay more.
These are the conclusions:
78% would see the typical English resident face a lower expected estate tax liability following reform. The typical resident of Greater London or South East London would face a greater local tax burden per head.
Second, simulate all possible scenarios by simulating how the proposed reform will affect property tax payments in a variety of representative homes across England. Each decile had one LA chosen to represent the English housing market: Chelsea and Kensington, Guildford, West Berkshire, Basildon; Bedford; Cheshire East. Redditch; Leeds. Newcastle upon Tyne. And Burnley. These ten LAs were divide into three categories: property with a median price as of December 2019. This is 50% more than the average; 25% less than that median.
These are the conclusions:
The pattern is that the winners are often find in poorer areas and houses with lower prices. Compiling all the results, 76% of the lowest-priced houses in the ten representatives Los Angeles areas are winners. 48% of median-priced houses are winners. 24% of the most expensive houses are losers. You should remember that these results tend to show that the median-priced homes in LA are typically more expensive than the average, while the median-priced houses are generally cheaper (25% below the median).
Burnley, which is the lowest-priced housing market in the country, has the best houses. However, houses that have a median price are also winners (Scenario 2, or where we assume that property-rich LAs reduce taxation by 10% while property-poor LAs increase taxation by 10% (Scenario 5,).
Professor Paul Cheshire Comment:
“With these changes, we have attempted to strike a delicate balance between what’s economically efficient and what’s politically feasible. These criteria are met by moving to an APPT. The APPT also plays a part in addressing regional disparities. These reforms, including the introduction of Green Offsets (a developer levy) and a Developer Levy will produce a property tax system that is fairer, greener, and better able to deliver more new houses. It is also simpler and more transparent than what we currently have.
Former Treasury Minister The Rt Hon David Gauke made the following comment:
“No one can argue against the ideal system of property taxes. This paper presents a compelling argument for fundamental reforms based on economic efficiency, fairness, and fairness. This article is an important contribution to the important discussion about how we should reform our property tax system.
The Rt Hon Dame Margaret Hodge.Former Chair of Public Accounts Committee
“Our current system of UK property taxation is severely flawed and highly regressive. Bright Blue presents a credible proposal on how we can address this inequity. These recommendations deserve serious discussion to ensure that there is a consensus on how to resolve the complex problem of taxing properties.
The Rt Hon. Lady Willetts, Former Minister in State for Universities and Science commented:
“This important document highlights the need for reforming Britain’s regressive tax on property. They fall most heavily on the poorer sections of the country so reform should be an essential part of the leveling down agenda.
The Rt Hon. Vince Cable, Former Secretary-of-State for Business, Innovation, and Skills, commented on the matter:
“The arguments to tax property and land more than labor and capital investments are well established. Politics are hard. The current property tax regime through council tax is unfair and unjust. Reform is therefore urgently required. The practical questions are now being answered and proportional annual property taxes is much more satisfying.
The Rt Hon Baroness Bennett from Manor Castle, Former Leader, of the Green Party commented:
“I welcome the exploration by the Green Party of our current deeply corrupt and dysfunctional system, council tax and stamp duty. The Green Party calls to establish a land value tax. While this is one area in which we share some common policy principles with Winston Churchill, it’s not the only thing that’s necessary. It is essential to have a discussion and campaigning for the government to address the current archaic and damaging system. Newsplana