Possible changes to taxation of land and rura

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News article

Possible changes to taxation of land and rural property

August 2011

rural consultancy news

Tax by Design, the final report from the Mirrlees Review due to be published in September 2011, has made a number of recommendations seeking to simplify the tax system in the UK. These could impact on landowners and those with rural property interests.

The report, commissioned by the Institute of Fiscal Studies, is likely to be used by the Office of Tax Simplification (OTS). The OTS, which was launched in July 2010, has a remit to investigate all tax relief and small business taxation and makes recommendations to the Government.  
 
The latest draft of Tax by Design shows little economic support for Stamp Duty Land Tax or Council Tax, primarily because Stamp Duty Land Tax is absurd in its ‘slab’ structure and the values used to determine Council Tax are based on house prices in 1991. To replace Council Tax and Stamp Duty Land Tax, the report suggests the introduction of a 'Housing Service Tax' which would be more closely aligned to actual property values to stand in place of a potential VAT assessment on residential property values.
 
The report is also dismissive of the rationale behind business rates and highlights the differential treatment between certain classes of 'business property' (eg retail units and agricultural land). This could potentially be of concern to farmers and rural landowners.
 
Importantly for rural land owners, the report makes a strong case for a ‘Land Value Tax’, essentially a tax on location and specific planning permissions. In some ways this would be similar to previous attempts to levy ‘development taxes’ which have been largely unsuccessful. Thus, the ‘Land Value Tax’ would replace the current system of taxation levied on business property but not on land.
 
The report does not go into great detail on how such a ‘Land Value Tax’ could be implemented and acknowledges that there are potential difficulties in assessing the value of land as separate from any structure on it.
 
The report further notes that there are several flaws with the current Inheritance Tax system from an economic and intellectual perspective. The report recommends that the most blatant loopholes be removed from Inheritance Tax and introduce a “comprehensive lifetime wealth transfer tax”. This signals potential future uncertainty for Agricultural Property Relief which could have wide ranging impacts on rural landowners and, in particular, traditional rural estates. Some might argue that it could also affect capital values.
 
Guy Hemus of Fisher German comments “It is apparent that the possibility exists of drastic changes to the current taxation system of the United Kingdom. Whether the eventual recommendations of the Mirlees Review are enacted by either the present, or future, parliaments remains a moot point, given the political unpopularity of some taxation decisions, however well based they are in intellectual and economic terms.
 
Nevertheless, it is vital that landowners are aware of the current taxation system and any potential changes to it in the future. They must bear this in mind and seek appropriate estate management, valuation and other professional advice when contemplating any decision that could trigger a taxation liability.”

For further information, please contact Guy Hemus on 01530 410890 or email guy.hemus@fishergerman.co.uk
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