Land for the Many - Labour Party report
30th July 2019 by Graham Bird
The Labour Party have recently commissioned a report exploring the role that land plays in our society. The report titled “Land for the Many” seeks to suggest ways in which:
- House and land prices can be stabilised.
- The ratio between house prices and income can be narrowed.
- The holding of land and housing as a financial asset can be discouraged.
Some of the methods that have been suggested to achieve these goals could have a considerable impact on landowners big and small.
The Report looks to discourage the holding of land and housing as a financial asset by imposing tax disincentives as well as market regulation.
Regulations includes limiting rental increases to the lower of the Consumer Prices Index and Wage Inflation and also making it more difficult to evict tenants in the first three years of any lease.
Council tax would be replaced with a “progressive property tax” and the restrictions to rental increases would mean that this tax is borne by landlords. This tax will also be increased for second homes and empty properties.
The tax system would also be reformed to further discourage the use of homes for speculation and rent extraction;
It proposes that Capital Gains Tax on second homes and investment properties is increased “at least” in line with income tax rates. CGT on residential property is already higher than other capital gains at up to 28% and this proposed increase could subject any gains to tax of “at least” 45%.
Companies holding property will suffer from increasing ATED charges and further tax charges where beneficial ownership is held in secrecy jurisdictions.
Landlords will well recall the recent measures restricting relief for mortgage interest payments as well as the tightening of capital gains tax reliefs have already made the holding of property less attractive; further tax disincentives combined with commercial restrictions are likely to amplify this.
The report looks at the motives of property developers and concludes that their incentive is to produce profits for shareholders rather than delivering the housing, infrastructure and quality society requires.
The report suggests that Development Corporations are established to allow development to be pursued in the public interest.
This is to be enabled by changes to the compulsory purchase laws which would enable these Development Corporations to purchase development land at current use values. The goal being to capture any “planning gains” in the public purse very much at the expense of landowners.
The report states that the Development Corporations would not replace private developers “altogether”, but they would act as a “prime mover” in the land market.
These provisions would likely have a major impact on land prices and reduce the opportunity for landowners to achieve any additional value from it. Indeed, you could envisage landowners being forced out of business if, for example, a compulsory purchase made the remaining farm unviable.
The Report suggests a number of measures that could have an impact on farmers and farming families.
The report highlights the need for a review of farming subsidies with a movement towards payments based on productivity or positive use rather than simply the amount of land held.
It suggests a review of the tax exemptions given to landowners with an aim to “restrain financial privilege without harming family farms”. The IHT implications are explored further below.
Transparency provisions would be introduced which would make the financial affairs of farmers publicly available; this would include the amounts of subsidy received, as well as details of land owned.
The report highlights that the environmental impact of agriculture has increased as farming has become more industrialised. It suggests that an extension to the planning system is considered to cover farming operations; while the goal is noble, adding further red tape could hamper farming productivity.
The suggestions in the report would have a significant impact on the economics of farming, limiting the availability of planning gains and potentially impacting the way in which the land can be farmed.
The Report suggests that IHT relief is currently generous and that each couple can potentially pass £1m on death without an associated IHT liability in addition to the reliefs available for business and agricultural assets.
The immediate “important interim step” would be to reverse the Conservative Government’s recent main residence nil rate band. Implementing this would immediately cut the IHT relief per couple to £650,000.
The suggestion is that in the longer term IHT is replaced with a lifetime gift tax taxable on the recipient.
The recipient would be subject to tax on any gifts received over and above a lifetime limit of £125,000. Any excess would be subjected to tax at income tax rates.
Conditional exemptions for business and agricultural property would be available; any gift tax would be deferred until the asset is sold, the business ceases or becomes an investment entity.
The Office of Tax Simplification has now released their second report in respect of IHT (please click here for more information), so irrespective of whether we have a Labour or Conservative Government in the future, IHT is an area that could be subject to considerable change over the coming years.
Some of the recommendations in this report would very much change the status quo and it is fair to say could have major implications for landowners big and small. Everyone from small scale landlords to landed estates would feel the impact.
While the implementation of all or part of this report could be a long way off (if ever), it does highlight that there could be further uncertainty on the horizon, depending on political fortunes at Westminster.
For further information please contact Graham Bird.
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