Why capital value assessment is unsuitable for Land Value Taxation

The problem surfaced in a land valuation study carried out in West Oxfordshire. The aim was to see what would happen if the same revenue was raised from the same area using land values as the basis of the assessment. In effect, it was a notional pilot study.

Residential property is subject to the Council Tax, a relatively small charge locally determined and based on banded selling prices.

Commercial property is subject to the National Non Domestic Rate (NNDR or UBR) which is a relatively larger charge based on rental values. The same property will be subject to much higher charges if it goes from residential to commercial use, which distorts the property market and patterns of land use in the UK. This differential has the effect of depressing the price of property, actually the price of land, in commercial use.

The valuation was on capital values. The valuer applied a correction to strip out the hope values. But no correction was applied to adjust for the differential taxes currently being paid. This made the aggregate residential values appear artificially high and the study showed that to raise the same amount from LVT as from the present taxes, some residents would have ended up paying more, which promoters of the scheme thought could be electorally bad. And so all sorts of compromises and complications were suggested.

There had been two further problems here due to the nature of the study. First was the choice of the study area, which was largely residential. In an LVT situation the collection would be nationally and would lump together areas of high land value in city centres in SE England and areas of low land value in remote parts. The study could not not even draw in the areas of high land value in central Oxford and the assumption of trying to raise the same revenue over such a small area was an artificial one.

LVT assessments using rental values should initially be current use value except where there was an actual planning consent for development. Nobody can be asked to pay tax on the basis of a value that could not actually be realised there and then. With selling prices as the basis, the introduction of the LVT would promptly hit those prices. But it would have no effect on land rental values.