Land tax not housing tax

NICVA's Centre for Economic Empowerment has launched a new report into the feasibility of introducing a Land Value Tax (LVT) in Northern Ireland – to replace the current system of rates based on capital values.

What is Land Value Tax?

Real estate is comprised of two parts: land and improvements – typically buildings on the land. Under the current system (introduced in April 2007) rates are levied on the value of the property (at 1 January 2005) with no distinction between the land value and the building.

Under a system of LVT, the charges would be levied on the land only, with improvements subject to zero or minimal taxation. If introduced it could mean that land bought by developers but not developed, and agricultural land could be taxed for the first time.

The report argues that this would shift the burden of real estate taxation towards less productive activities, particularly speculation on land, which is a major source of property bubbles.  The report also found that LVT would be a progressive tax, with the most deprived paying least.

Impact of Land Value Tax

Modelling of the potential yield impact of LVT suggests that it would redistribute the burden of property tax away from the west towards the south-east of Northern Ireland. The report’s authors Ron Lyons and Andy Wightman say there is a strong positive correlation between LVT and deprivation. In other words, it is a “progressive tax”.

At the launch of the report last week, its authors also highlighted the potential for LVT to reduce the likelihood of future housing market bubbles. "Property bubbles cause immense social and economic damage in the medium and long term and inflated property values merely increase indebtedness and reduce economic output," they said. "Well-designed land and property taxes can play a significant role in making land affordable and promoting economic growth.”

"Northern Ireland is well-placed to be innovative in the way it develops land and property taxes. Although we do not recommend a system of Land Value Taxation be introduced in the immediate future, we are firmly of the view that such a fiscal reform is both feasible and desirable. Our report provides recommendations on how this can be done."