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In his 1776 tome, Adam Smith, considered the father of economics, declared: Wealth of Nations, tax policy should adhere to four principles: fairness, certainty, convenience, and efficiency. The UK property tax system violates these four principles.
Council tax, stamp duty and business rates – collectively raising over £90bn, close to 9% of total UK revenue government revenue — are good examples of poor tax design. They increase inequality and reduce productivity, constraining the UK’s economic potential. Each of them is in dire need of reform.
The first is council tax, a property tax in England based on property value since 1991. The huge change in house prices since then makes this tax highly regressive.Proportion of median Total annual salary Council tax payouts range from 2.2 per cent to 10.9 per cent, with those in the north-east and south-west paying the most relative to wages, while those in London, where incomes and home values are higher, pay the least.
A fairer solution would be to eventually replace that tax with an annual proportional property value tax based on the most recent home valuation. City councils should retain the right to receive revenue to incentivize them to develop their local areas. Tax rates can be chosen so that each authority raises the same amount as municipal tax. Central funding to local authorities should then be adjusted to reflect differences in the tax base. Any such transition should be done in stages to avoid drastic changes to the bill. Caps and reliefs also apply to the most vulnerable, and the ability to defer payments until sale or death will support cash-strapped property owners.
Next consider stamp duty, a transaction tax that is a serious contender for the worst tax in the UK. Imposing a tax when people move would discourage owners of large properties from making price cuts and disrupt the housing market more generally. This has restricted the mobility of workers across the country, exacerbating the UK’s productivity woes and exacerbating local skills shortages.
Taxes should be gradually lowered and eliminated in the long run. Stamp duty and council tax in the UK, for example, could eventually be replaced by a 0.5% tax on current property valuations, making them revenue neutral. fairer sharean act of kindness.
Finally, take the business tax rate, a flawed tax on property value. It combines an efficient land tax with an inefficient land tax that discourages companies from investing in their properties. This problem can be solved by removing the value of the new structure from the taxable value, which will generate long-term growth benefits by encouraging development.
Land value tax – a tax on land that has not increased in value – has long been controversial in Britain but was deemed too difficult to implement. This business rate reform will be a stepping stone for the LVT; Smith thinks it’s the perfect tax.
Political challenges make these reforms easier said than done. Indeed, the property tax system has suffered from inertia, given the potential winners and losers from change. A phased implementation and cost buffer will help with any transition. At the same time, planning reforms will help take advantage of new development incentives.
But as long as the status quo of council duty, stamp duty and business tax rates remains the same, the UK will be a more unequal, less productive and less income-generating country. This does no one any good.
This is the fourth in a series of editorials on reform of the UK tax system.First, regarding the necessity of reform, it can be found that here.The second is about corporate tax, which can be found in here.The third one is about car tax, which can be found in here.
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