Investigation of Potential Land Value Tax Policy Options for Scotland Final Report Dr Cathy Hughes Dr William McCluskey Professor Sarah Sayce Dr Edward Shepherd Professor Pete Wyatt 23 July 2018 Investigation of Potential Land Value Tax Policy Options for Scotland – Final Report Contents List of abbreviations ................................................................................................................................ 5 Executive summary ................................................................................................................................. 6 Introduction ........................................................................................................................................ 6 Research aims ..................................................................................................................................... 6 Research method ................................................................................................................................ 6 Current land and property taxation in Scotland ................................................................................. 7 What is land value tax? ....................................................................................................................... 8 Land value tax: key issues ................................................................................................................... 8 Political issues ................................................................................................................................. 8 Land registration ............................................................................................................................. 9 The planning system ....................................................................................................................... 9 Valuation of land ............................................................................................................................. 9 Land value tax around the world ...................................................................................................... 10 Policy issues and options for further consideration by the Scottish Land Commission ................... 11 Option 1: Extend existing land and property taxes....................................................................... 11 Option 2: Reform existing land and property taxes ...................................................................... 12 Option 3: Introduce a LVT alongside existing LPTs ....................................................................... 12 Option 4: Introduce a single LVT that replaces existing LPTs ....................................................... 12 Further variants ............................................................................................................................. 12 Conclusion ......................................................................................................................................... 13 1 Introduction .................................................................................................................................. 14 2 Background to the research .......................................................................................................... 15 2.1 Research methodology ......................................................................................................... 15 3 Policy and political context for the research ................................................................................ 17 4 Land and property taxation overview ........................................................................................... 19 4.1 What is land and property taxation? .................................................................................... 19 4.2 Land and property taxation in Scotland ................................................................................ 21 4.2.1 Council tax ..................................................................................................................... 21 4.2.2 Non-domestic rates (business rates) ............................................................................ 22 5 Land value taxation ....................................................................................................................... 24 5.1 What is land value taxation? ................................................................................................. 24 5.2 The economic rationale for land value taxation ................................................................... 25 5.3 Implementing and administering a land value tax ............................................................... 27 5.3.1 Political issues ............................................................................................................... 27 2 Investigation of Potential Land Value Tax Policy Options for Scotland – Final Report 5.3.2 Practical issues .............................................................................................................. 29 5.4 Land value taxation – administration issues ......................................................................... 34 5.4.1 Who pays? ..................................................................................................................... 34 5.4.2 Extent of tax base .......................................................................................................... 34 5.4.3 Tax rate ......................................................................................................................... 35 5.4.4 Revaluations .................................................................................................................. 35 5.4.5 Public understanding and appeals ................................................................................ 35 5.4.6 Responsibilities ............................................................................................................. 35 5.4.7 Initial rollout of LVT ....................................................................................................... 36 5.4.8 Summary ....................................................................................................................... 36 6 International experience of land value tax ................................................................................... 38 6.1.1 Queensland, Australia ................................................................................................... 38 6.1.2 Estonia ........................................................................................................................... 44 6.1.3 New Zealand ................................................................................................................. 47 6.1.4 Denmark ........................................................................................................................ 52 6.1.5 South Africa ................................................................................................................... 60 6.1.6 Land tax in Namibia ....................................................................................................... 64 6.1.7 Summary ....................................................................................................................... 67 7 Consultation interviews ................................................................................................................ 71 8 Policy issues and options .............................................................................................................. 74 8.1 Cross-cutting issues ............................................................................................................... 75 8.1.1 Strategic cross-cutting issues ........................................................................................ 76 8.1.2 Technical valuation cross-cutting issues ....................................................................... 81 8.2 Policy options for further analysis ........................................................................................ 85 8.2.1 Option 1: Extend existing LPTs ...................................................................................... 87 8.2.2 Option 2: Reform existing LPTs ..................................................................................... 88 8.2.3 Option 3: Introduce a LVT alongside existing LPTs ....................................................... 91 8.2.4 Option 4: Introduce a single LVT that replaces existing LPTs ....................................... 95 8.3 Further variants ..................................................................................................................... 98 8.4 Conclusion ............................................................................................................................. 98 Appendix I: Relevant policy and legislative events in Scotland 2014 - 2018 ...................................... 100 Appendix II: Land value capture or betterment taxes ........................................................................ 102 Background ..................................................................................................................................... 102 National land value capture ............................................................................................................ 102 Local land value capture ................................................................................................................