Debate Magazine

Killer Arguments Against LVT, Not (327)

Posted on the 15 May 2014 by Markwadsworth @Mark_Wadsworth

Sobers keeps digging in the comments to #326:
The trouble is that the thing you wish to tax (site only rental value) doesn't really exist in reality, only as a theoretical construct. No-one rents empty land, and then builds houses on it, or shops or factories.
They buy the plot and do that, or they rent the house/shop/factory thats already there. So there are no market arrived at site only rental values to use as comparisons, beyond the rental market for farmland.
If you wished to tax the pure rental value, that would make more sense, because every property has a reasonably easily calculated rent, (1) and if you wished to tax the sale/purchase value, again thats relatively easily worked out.
But this insistence that LVT is levied on the 'site only rental value' is absurd, because such a thing doesn't actually exist, and thus for any given property is purely arbitrary.(2)

1) OK, fair enough. In which case the tax base for LVT (the site premium) can be defined as:
"The total rental value of the land and buildings, less a round sum deduction for:
- notional interest on cost/value of buildings element;
- amortisation of cost/value of buildings element;
- typical average annual maintenance and insurance costs for a building of that type in that area."

Or as:
The total rental value of the land and buildings, less an amount equivalent to the rental value of the cheapest comparable buildings anywhere in the UK"
We can simplify this further for most housing by working out typical total deductions, for example £5,000 for a medium-sized three-bed semi-detached house.
That's no different to taxing people's earnings with a flat rate exemption of £10,000 personal allowance to reflect the basic minimum cost of actually staying alive. That's no different to the old Industrial Buildings Allowances: the owner could claim 4% of the original construction cost as a tax deduction each year for twenty five years, so the real capital was not taxed.
2) Of course it exists! That's like saying you can apply income tax to somebody's entire earnings, but only applying income tax to the amount which exceeds the personal allowance is aburd because it is arbitrary. Or saying that Industrial Buildings Allowances were absurd.
Yes, the personal allowance is somewhat arbitrary, as was the 4% rate (it changed occasionally), but so is the rate of income tax/corporation tax. Those taxes still "work" roughly as they are intended to.

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