Friday 30 November 2012

Killer Arguments Against LVT, Not (284)

There's an article on Inside Housing explaining why and how the so-called 'housing shortage' would melt away if we introduced LVT (among many other advantages). A commenter calling himself Chris appears sympathetic to the idea, but...

As meritable as your proposals are all that would result would be the mass sale of landed assets to offshore trusts and the landlords converted to tenants - against which they would no doubt claim tax deductions for the expense and inconvenience of such avoidance in much the same way that they do now over income...

The major appeal you state as easy seizure against non-payment is easily avoided, as I stated already, by converting owhership into a trust and then basing that trust in 'googleland' or a 'starbucks colony' where UK taxation does not apply. Try seizing a foreign asset and you could start a war John B. Whilst the principle, I agree with you, is very attractive, the reality is exactly the same as the peverse taxation we currently have.


Er, shall we leave the topsy turvy world of Homey non-logic and look at what actually happens in actual real life?

In the UK, we have something called "Business Rates" on commercial land and buildings which is so close to LVT as makes no difference. A lot of commercial land and buildings are owned by pension funds, foreign individuals, foreign companies, murky offshore companies and trusts, but collection rates are still close to 100%.

For sure, the rates are collected from the occupant of the premises (whether owner-occupier or tenant) and not the registered freeholder or leaseholder (unless the premises are vacant and not exempted, in which case the registered owner has to pay) and rather unsurprisingly, collection rates are close to 100%, far higher than other major taxes.

Whether, as a matter of administrative simplicity it is better to collect the cash payments from the occupant or the registered owner is a separate issue, the economic incidence is exactly the same. So landlords can pretend to be tenants or vice versa, owner-occupiers can split themselves up into landlord-tenant and vice versa, it makes f--- all difference.

Exactly the same applies to any annually recurring land taxes, such as Council Tax in the UK or previously Domestic Rates in the UK or Grundsteuer in Germany etc; if I buy myself a house abroad, like in the USA, which is liable to ad valorem taxes (and they nearly all are, although the average rate varies enormously from state to state and from county to county), then either I cough up or sooner or later they will repo the house.

There is no requirement for the USA to declare war on the UK, or wherever I happen to live, and it is a complete perversion of logic and language to describe land in the UK as a "foreign asset".

As to "claiming tax deductions for the expense", well, tax deductions are a question of man-made tax law. Business Rates are a perfectly ordinary allowable expense against corporation tax or income tax, which means that for a given tax take, the corporation or income tax rate has to be slightly higher, is all.

I'd be perfectly happy in principle to let households claim a deduction for the LVT they pay against their income tax bills - we could reduce a private household's income tax bill by £1 for every £1 LVT they pay, which neatly sidesteps the "double taxation" KLN - even though that would be adminstratively very messy (what about a shared rented house, who claims it - the landlord or one or more of the tenants?). It's probably easier to net off people's LVT bill and Citizen's Rebate amount to get a single net + or - figure and adjust their PAYE codes up or down accordingly, so that when LVT is increased and income tax is reduced, most people would see a year-on-year modest increase in their net wages.

9 comments:

Old BE said...

Surely if the registered owner of the land does not pay the tax it is simple to put a lien on the land. If the debt begins to approach the value of the land then the Treasury simply applies to have the land transferred to its ownership.

BE

Mark Wadsworth said...

BE, exactly, that is how it works in practice. The good news is that the threat alone is enough, in 98% of cases, for people to just pay up with no back chat (the same as any other tax).

And if people run up massive income tax or VAT arrears, then HMRC can and do try to seize their assets, including their houses, but this doesn't work nearly as well because clever tax evaders just put the house in somebody else's name.

Old BE said...

One practical issue I wonder about is land on which a complex is built on, say a council housing estate. If the owner (the council) pays the LVT and reclaims it back through service charges the chances are it will not always get 100% of the money back. Councils are basically banned from turfing tenants out for non-payment of rent/service charges.

Under your imagined scheme, would there be some mechanism for docking Citizens Income for unpaid rent/service charges/LVT?

BE

Mark Wadsworth said...

BE, the topic of "turfing out council tenants" is a bit contentious, but the short answer is "Of course yes."

We have a nuts system where the government gives people money and then takes money off them. As far as possible, recurring payments can be netted off.

Under current rules, pensioners get given cash, and if they have private pensions, then the government docks the income tax at source and then another branch of government asks them to pay e.g. Council Tax. Why not just deduct the Council Tax from the state pension and have done with it?

So when I say "LVT and CR would be netted off at source" that also obviously applies to council rents/service charge/LVT as well.

And it would also apply to e.g. unpaid child maintenance payments, court fines, whatever. We end up with every household either owing the government a small net amount of money each month or receiving a small net amount of money each month.

If it's a net liability, collect it in cash, as part of quasi-rent, via PAYE codes, via self-assessment tax return, from the tenant, the occupant, the landlord, doesn't really matter.

And if it's a small net payment to the household, well, pay it in cash.

Mark Wadsworth said...

BE, and the "netting off" works at intra-governmental level as well.

So the councils would be honour bound to collect £1 or £2 billion in LVT each, but they are also entitled to amounts from the central pot for "local services", so for most councils, this nets off to a few million either way.

If a council can't be arsed to collect the full LVT due, well that's their problem, the payment they make to/from the central pot is unchanged.

So even if the notional total LVT is £500 billion and the notional Citizen's Rebate is £300 billion, the actual cash changing hands (between households and council, or between council and central pot) would be a small fraction of that.

Old BE said...

Yup, makes sense.

BE

Lola said...

Just run your 'design your own LVT scheme again'. There really is no argument is there? Even though Mrs L is a retired person and we have a large-ish plot - but in a Suffolk postcode - we'd be better off. And my life would be a helluva lot easy in business creating more wealth.

Mark Wadsworth said...

BE, ta.

L, ta. Actually, I've been beaten down on the whole "tax per square yard" concept, I've decided we'll do it on site rental values alone (the purist approach), which means your large garden in the middle of nowhere would cost "not very much".

Lola said...

On 'site rental value' I'd be even better off as not many people want to rent a place like mine, in the middle of nowhere, on a rutted, potholed and very muddy road, no street lights, no mains drainage, no gas, fragile electric etc etc. heh! heh! Bring on LVT!