Peverse incentives

One of our members was complaining about the new on-line tax returns and the amount of tax he is now having to pay. For some reason they have changed the forms which was a bit of a nuisance as he was all geared up to filling in the old ones. No doubt a lot of people will be thrown into panic when they start to fill them in as the deadline approaches next year.

But his real complaint is the extra tax he is being asked for now that he has refurbished and let the flat he inherited. Of course he should not be complaining as not everyone inherits a flat. But until last year the place was full of things that had to be sorted out and cleared, and there was nobody living there. In fact, there had not been anyone living there for four years, two of them while his mother was in a care home and the other two while it was being cleared out and modernised. The only tax he paid was Council Tax, for which he became liable six months after obtaining probate. In the meantime, the property was going up in value vary nicely as the boom went into its final phase. He timed badly and should have sold, but perhaps foolishly, wanted to keep his options open. In any case, transaction costs are very high, partly because of things like Stamp Duty, which takes a hefty chunk.

The perversity of this is that the system, in effect, rewards people who do nothing with their property instead of getting it occupied or disposing of it to someone else who could make better use of it. Where is the sense in this?

This is the benefit of a switch to Land Value Taxation. The same tax is paid regardless of what people do with their property – whether they leave it as an empty site or develop up to the maximum the planners will allow. And people would not have all those complicated forms to fill in.