Andy Burnham, newly returned to Parliament, is the front-runner to become Britain’s next Prime Minister.
As the only declared candidate so far, he is widely seen as Sir Keir Starmer’s likely successor, though nominations for the Labour leadership do not close until mid-July.
Although Burnham is yet to formally announce any policies he’d like to pursue – and is not even yet leader of the country – there are some major tax reform policies which he is reported to be interested in pursuing.
Perhaps the most eye-catching is the potential introduction of a land value tax (LVT). Such a tax would be a radically new approach to how the Government taxes wealth and could have sweeping consequences for families depending on their financial situations.
Alongside this proposal sits the suggestion that Burnham may abolish council tax, inheritance tax and even potentially Stamp Duty. But there are some significant caveats.
Abolishing these taxes is seen as a ‘sweetener’ to convince people to acquiesce to LVT – which could be a far more sweeping tax policy than those three inefficient taxes. Think tanks such as Tax Policy Associates have likewise argued that council tax, business rates and Stamp Duty should be scrapped and replaced with a land value tax.
But Burnham also favours replacing inheritance tax with a social care levy. The details of this are unclear, but suggest taxing estates after death based on wealth or care costs.
Land value tax
So how does a land value tax work and how would it affect your tax position?
Land value taxes come in several forms but in principle tax the unimproved value of the land that sits underneath a property (or indeed, undeveloped land too).
Typical rate levels vary but a common suggestion is between 0.5% and 1% annually of the total value of the land. This matters most if LVT replaces council tax, which critics see as regressive: owners of lower-value homes can pay more as a proportion of value than owners of much more expensive ones. Linking the charge to land value would shift the balance, so some households in lower-value properties could end up paying less.
It is difficult to find average land prices but we can use property as a proxy to estimate a typical LVT bill. The current UK average house price is £270,000 according to the Government’s latest house price index data. At 0.5% the owner of this property would pay £1,350 a year (which would fluctuate depending on the value of the property). At 1% the owner would pay £2,700.
So why would Burnham look to launch LVT?
LVT has supporters on both the left and right of politics. On the left it is considered much ‘fairer’ as those with more valuable land have to pay more tax. On the right it wins support because of the efficiency it enforces on landowners. The Institute for Fiscal Studies’ Mirrlees Review concluded that moving towards taxing land values was among the most valuable reforms available for improving the efficiency of the UK tax system.
This is because landowners who sit on undeveloped land – or have property on land that is economically useless – no longer have an incentive to sit on that land and do nothing with it. They are forced to either pay the tax or sell the land to someone who wants to do something better with it.
None of this is set in stone yet. However there seems to be a clear sense that Burnham wants to impose radical change on the country. If enacted, these changes could be significant and it is essential to ensure your long-term plans remain on track no matter the tax landscape.
If you have any questions about how this might affect your plans, please do speak to us.