LVT: what is it?
LVT in a nutshell
- LVT is a nationally determined percentage tax on the open market value of all land.
- LVT is not a tax on buildings or gardens - it is based on land value only.
- "Open market value" is what someone would pay for the land if it was sold.
- Land value depends on where it is and what it may be used for.
- You can't change the location of land, or hide it in a tax haven.
- The planning process determines what land may be used for.
- Farmland in Lincolnshire has a higher market value than farmland in Snowdonia.
- Building land in central London has a higher market value than building land in Doncaster.
- LVT is not a new tax, it will replace existing taxes.
- Intially LVT will replace all property taxes - including Council Tax.
- LVT is paid by the land owner (the freeholder) not tenants.
- LVT is collected nationally but distributed to Local Authorities based on local needs.
Please read the FAQ page for answers to many of the questions we are asked about LVT.
- fair - those with most pay most,
- much easier to understand than Council Tax - see below,
- simple to implement,
- cheap to collect,
- impossible to avoid,
- not a new idea or a left wing idea - it has been round for over 150 years,
- in use elsewhere in the world. E.g. USA, Denmark, Singapore, Taiwan.
How is the LVT rate calculated?
taxes-to-be-replaced / total-land-value * 100
34 billion / 2000 billion * 100 = 34 / 2000 * 100 = 1.7%
34 billion is approximately the amount raised by Council Tax in 2018.
We won't know the total value of all land until it has been registered and valued during the first stage of implementing LVT.
Note 1: that is 1.7% of the land value, not the property value.
For example: a house on a housing estate may be purchased for £400,000 but the value of the land on which it is built may be £50,000. The percentage rate applies to the £50,000, not the £400,000, so the LVT due would be £850.
Note 2: older readers may not like it but the world now uses the American system for large numbers:
- 1,000 x 1,000 = one million
- 1,000 x 1,000 x 1,000 = one billion
- 1,000 x 1,000 x 1,000 * 1,000 = one trillion
So, 2000 billion is 2 trillion = 2, 000, 000, 000, 000.
Council Tax isn't simple!
Here are the Council Tax bands for England.
Conversation in the pub
"I've just bought a house for £375,000 on a new development so I am in band H."
Well, no. Someone from the Valuation Office Agency (VOA) has to study your new house and compare it with other similar houses in the area and put your new house in the same Council Tax band as they would have been in 1991 which was the last time houses were valued for local taxes.
"Ok, it's in band D - so I will pay the same as everyone else in the country on band D!"
Well, no. It will depend on which of the 150 different Local AuthorIties your house is in and the amount will usually be made up of two parts: some going to a County Council and some going to a District Council. It will be different in Cities and Metropolitan areas - but you can figure that out for yourself.
"Well, at least I know how much it will be each year!"
Well, no. It will change every year to meet local needs but your area won't be able to raise all it needs because national government imposes limits on local authorities - but, don't worry, it will be fine!
"Well, at least collecting this tax is simple and cheap!"
Well, no. Each of the 150 Local Authorities in England has a team of people dealing with Council Tax. It's not too bad with home owners like you because people don't change houses that often. It's different with tenants because they change a lot more.
LVT is much simpler.
- The developer paid £12 million for the land and built 250 houses - that's £48,000 per house (*) - that's the land value.
- The national LVT rate is 2% (**) so you will pay £860.
- Land values will change depending on the market price for land where you live - the VOA will announce these changes each year so you can calculate your LVT.
- LVT is paid by the freeholder, not the tenant. Freeholders are easy identify - they are named on the Land Registry and don't change very often.
- LVT is collected nationally - so it is much less expensive to collect than Council Tax - that reduces the cost to taxpayers.
* some houses will be larger than others. The total area of all the houses on the development will be known so the land value of each individual house will be in its documentation when sold.
** we don't know the percentage rate yet - it will depend on the total land value in the country and which taxes LVT replaces. This will be sorted out during implementation.
Determining the value of land
The value of any piece of land is determined by:
- Where it is.
- What it may be used for.
An example of land values
Arable and grazing land in South Derbyshire is selling for between £8,000 and £10,000 an acre.
Green field land on the west and north west edge of Derby was zoned for housing by Derby City Council and South Derbyshire District Council and in 2017 Bloor Homes paid Richborough Estates (a company specialising in converting rural land into housing land) £11.9 million for 34 acres to be known as "Manor Fields". (£350,000 an acre.) Richborough Estates had previously purchased the land from the freeholder.
The very act of getting planning permission changed the market value from £10,000 an acre to £350,000 an acre.
252 houses will be built on this land making the land under each one worth over £47,000.
In addition Bloor Homes has paid £5.6 million towards local infrastructure but it managed to avoid the requirement to build affordable housing on the site by paying South Derbshire District Council £3.2 million (included within the £5.6 million) towards building such homes elsewhere.
Radbourne Estate has 3,000 acres of land between Dalbury Lees and Derby. The estate is partly in trust (to avoid tax) and partly in the hands of members of the Chandos-Pole family. Over the last few years the Estate has sold land for development bringing in millions for the family.
What did Richborough Estates and the Chandos-Pole family do to justify these windfalls? Nothing. We (society) granted permission, they made millions - on which, no doubt, they will do their best to avoid paying tax.
"The Manor of Radbourne has been held by the Chandos family from the time of the Norman Conquest. It is one of the few UK landed estates that has passed only by inheritance and marriage since the Conquest, when William the Conqueror's ally Henry de Ferrers was granted it in the 11th century.
One could argue that this is an example of untaxed land taken by violence and theft.
The government publishes land value estimates used for policy creation and in 2017 these show:
- Residential land in Bolsover (Dennis Skinner's constituency) at £370,00 per hectare (£150,00 per acre).
- Residential land in Chelsea (Greg Hand's constituency) at £180,600,000 per hectare (£73,117,000 per acre).
Obviously the value of land, as a proportion of total house price, is higher in Chelsea than in Bolsover. The LVT levied on the same sized house in Chelsea would therefore be more than that levied in Bolsover. This seems perfectly fair, after all, if you can afford a house in Chelsea, you can afford the LVT on its land value.
It's not that simple because 90 acres of Chelsea and Knightsbridge are owned by Cadogan Estates to which home owners pay a ground rent. Cadogan Estates is owned by Charles Gerald John Cadogan (Earl Cadogan) and the LVT would be paid by the freeholder named on the lease - probably one of the many "Cadogan ..." companies listed at Companies House.
An interesting calculation
We have no idea what the LVT percentage rate would be - it depends on the total value of all land in the country and the income generated by the taxes LVT will replace - it could be 0.5%, 1%, 1.5%, 2% - we don't know yet.
However, let's do a purely theoretical calculation based on a guestimate rate of 2%. That's 2% of the land value, not 2% of the property value. Feel free to try different percentages for yourself.
According to the government's figures residential building land in Chelsea has a market value of £73,117,000 per acre.
That makes Earl Cadogan's land worth £73,117,000 x 90 = £6,580,530,000. (£6.5 billion.)
At the moment no tax is paid on this land value.
The annual LVT would be £6,580,530,000 * 2% = £131,610,600. (£131.6 million.)
That adds up to a lot of schools, hospitals, teachers, doctors and nurses.
The same calculation, based on the average land value per house on the new Manor Fields estate in Derby (see box above), would be £47,000 * 2% = £940 - considerably less than Council Tax! In fact 86% of all homeowners would be paying less under LVT than under Council tax.
Getting round the law
Almost all major developments require additions to infrastructure: roads, schools, medical centres, shops, affordable homes, etc. Section 106 of the 1990 Town and Country Planning Act enabled local authorities to negotiate with developers for these changes to be carried out by the developer as a condition of granting planning permission.
The 2008 Planning Act introduced the Community Infrastructure Levy (CIL). Rather than having to carry out specific infrastructure work the developer pays a levy to the local authority which then decides how to allocate it to infrastructure projects
A whole industry has grown up offering services to remove or minimise Section 106 and CIL obligations - such as the on-site affordable homes requirement in the case of the Manor Fields development described above.
Further examples of land values
- Building land is worth more than agricultural land.
- Arable land in East Anglia is worth more than hill land in North Wales.
- "Hope" land is worth more then no-hope land. "Hope" land is in areas, usually on the edge of a settlement, which may or may not be zoned for housing at some time in the future.
When such land changes hands the title usually includes an uplift clause (also known as an "overage" clause") so the seller can get some share of the increase in value of the land if it ever gets planning permission. An industry has grown up to draft such clauses or to attempt to get them removed from land titles.
- Building land in Kensington and Chelsea is worth more than building land in Swadlincote.
- Building land without an agricultural tie is worth more than land with one.
- Land in an area zoned for future housing is worth more than in an area that is not zoned.
- Zoned land with planning permission is worth more than zoned land without.
Another way to think of land value
Most of us think of our homes as "property" - the combination of the house we live in and the land on which it sits - including the garden!
Most of us have insurance to cover the cost of rebuilding our homes if the worst comes to the worst.
Land value can be thought of as the value of the property (what we could sell it for) minus the cost of buildings.
The cost of building a house does not vary much across the country: bricks, concrete, timber, tiles, plaster, plumbing, wiring, paint, fixtures and fittings cost the same wherever you are. Obviously the costs varies according to the quality required: standard (as on most modern estates), comfortable or luxurious. The cost of labour may vary across the country but overall the total cost of building/rebuilding to the same standard will be pretty similar.
So why does a new "Executive Home" on an estate within the M25 cost vastly more than the same home on an estate outside Swadlincote? The answer is simple, the land costs more because of the location factor.
LVT taxes the value of the land, not the value of the buildings.
LVT has a number of advantages over other forms of taxation:
- It is impossible to avoid (you can't hide land in a tax haven!) - unlike other taxes.
- It is simple to understand.
- It is simple and cheap to implement.
RICS surveyors have been assessing land value since 1868.
Every sale of land updates the Land Registry so local values are easy to see.
Land values can be made visible to all via maps on the Internet (as done in the USA).
- It is simple to identify the payee - the freeholder - the person named on the Land Registry.
Unpaid LVT becomes a lien (a debt) on the land recorded on the Land Registry.
- It is self-adjusting - it rises or falls as the value of land rises or falls.
- It can be national, local or both.
- It becomes expensive to hoard land banks.
- It spreads the tax load fairly - those who have most, pay most.
- It promotes the best use of land - there is no point leaving it idle if you pay tax on it.
- It promotes a shift of economic development towards areas with lower land values.
- Council Tax is unfair. People in South Derbyshire are paying betwen 200% and 300% more then those in the same tax band in Kensington & Chelsea.
- Business Rates are a disincentive to business. At the moment they are part of the reason why shops are closing on high streets.
- Stamp Duty (or Stamp Duty Land Tax) is a tax on higher value property.
- Section 106 Arrangements are requirements to provide infrastructure and services placed on a developer as a condition of planning permission.
- Community Infrastructure Level (CIL) is a financial levy on the value of a development to enable the local authority to provide required infrastructure and services.
- Annual Tax on Enveloped Properties is a tax on companies who own UK residential property valued at £500,000 or more.
This has become very messy as these taxes have grown over time. Some have been slappd on as knee-jerk reactions to public anger (i.e. media reports).
They all tinker at the edge.
The requirement is to provide local authorities with the resources to meet local housing needs, local infrastructure (roads, etc.) and local services (schools etc.)
This is best done by making things fair, simple, unavoidable and easy to collect.
LVT meets all these requirements and is so simple it can be understood by the average year 6 pupil - we know, we have tried it!