It's almost two years since I wrote the following blog, but it seems to me that it is as relevant as ever, which is why I repeat it here:
Alistair Darling should levy a £5bn "empty property tax" on up to a million homes left vacant by absentee landlords, to help meet the costs of the financial crisis, trades unions will argue tomorrow.
The TUC wants the chancellor to charge five times the usual council tax — an average of £5,875 — on homes standing empty to persuade owners to sell or let them. It would like to see overseas landlords charged UK income tax on rental payments unless they can prove they are paying it in their home country.
Brendan Barber, TUC general secretary, will use a speech to an economic conference in London to argue that the number of homes standing empty, thought to be a million on some estimates, is a national scandal.
"Across the UK, the queue for social housing is growing. In London especially, a chronic housing shortage is pushing prices well above their pre-recession levels — and out of reach of many potential home owners.
"How can it be fair then that a million houses lie empty across the UK? These properties — often bought for purely speculative purposes or as a vehicle for tax avoidance by overseas landlords — contribute to our housing crisis and fiscal deficit."
In its submission to the Treasury before Darling's pre-budget report on 9 December, the TUC says the chancellor should use tax measures, as well as public spending cuts, to deal with the government's deficit — and ensure that the rich bear their fair share of the burden.
So let's get the caveats out of the way first of all:
a) Of course short periods of inoccupancy would not count — indeed up to a year should not be questioned
b) But second properties should count as vacant and be subject to an additional charge — even if at a lower rate than that suggested for wholly vacant property — because you can't live in two properties at once
c) Holiday lets should not count as vacant — but only if really let. They do play a role in the tourist economy
d) There should — as with some rules in capital gains tax — be room for appeal in special circumstances
These noted, the proposal makes complete sense. We have a shortage of housing. That housing is needed now. The UK has a stock of available housing that is being withheld from the market. By pricing it into the market valuable resources are saved, need is met and planning stress is reduced. The increased supply of housing will also reduce house and letting prices: another social gain.
As such the potential gain for society from changes in behaviour promoted by this tax is enormous. And if the tax yield falls as a result — so be it. That is part of the intention.
And dealing with the offshore landlord issue — evidence is available that many occupied and rented properties are now being registered through offshore, tax haven companies registered in locations such as the British Virgin Islands, Jersey, Guernsey and Switzerland. For all practical purposes it is almost impossible to determine who really owns these companies. The reality is that they could be owned by UK resident people who are hiding that fact by registering these properties in the names of tax havens companies.
Anecdotal evidence from HM Revenue & Customs also suggests that although there is a requirement that a non-resident landlord company be registered with HM Revenue & Customs this scheme has become a virtual rubber stamping exercise: enquiry is not made as to the beneficial ownership of the companies that apply to receive rent from the UK without taxes being deducted at source and a list of properties the landlord owns is not demanded.
That is why the TUC suggests that unless an overseas landlord who is an individual is willing to prove that they have paid tax in their place of residence on the rent they will receive from a property in the UK then tax at basic rate should be deducted from all payments of rent made to them either by their tenant or their letting agent. Procedures to do this are already in existence, but it is at present possible to apply for gross payment of the rent without ever proving that tax is paid elsewhere on the income arising. This should now change and tax should be paid in the UK in the first instance until the income can be proven to have also been declared elsewhere (an exception being made for EU residents).
And, in the case of the non-resident landlord being a company there should be a different requirement. In every such case tax should be withheld at source on the grounds that the property in the UK represents a taxable branch of the company in the UK. That tax withheld should be required to be paid to HM Revenue & Customs at least quarterly, but with the right to make application for repayment at the year-end if it can be shown that the tax due on a properly computed profit was less, but then only if the full beneficial ownership is reported to HM Revenue & Customs with evidence of the standard required by anti-money laundering regulations being submitted as evidence e.g. copy passports as proof of identity and utility bills as proof of place of residence. This would curtail the massive risk of tax evasion in this market through use of impenetrable offshore companies.
The final change would apply in the case of offshore companies owning property in the UK that had not proven the identities of their owners to HM Revenue & Customs: in such cases capital gains tax should be assessed on sale by requiring that 20% of all sale proceeds be paid as tax unless full beneficial ownership of the offshore owners of the company are provided and tax computations submitted with tax still then being due on the resulting profit.
This policy has four critical objectives:
1. To increase available housing stock
2. To bring down its price
3. To tackle tax abuse
4. To target offshore abuse
All are key objectives for any government. This is why this tax makes sense. And it will also raise significant revenue from a source that largely avoids and evades it now: that is the added bonus that should sell it to any Chancellor.
Disclosure: I advise the TUC on tax issues.
The UK's economic problems have got worse since 2009. We could do with £5 billion.
More important than that, we could so with all these houses being put to use.
And we could do with many more being put on sale to bring house prices down.
Our young people have a right to aspire to what so many have done before them - which is to buy their own home. We should help them do so.
And it at the same time we remove the blight of empty homes, increase our tax yield, stop tax abuse and offshore evasion and redice the stress on green spaces all the better still.
Surely the time for an empty property tax has come?
There is more detail at page 29 here for those interested.
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Houses will continue to be unaffordable or extremely uncomfortable for first time buyers until we have a sensible property taxation policy. The old domestic rates, a much better system, helped to curb prices. Now my polish friends renting a small 2 bed flat in Christchurch pay the same Council Tax as a single person household in a £35m flat in Kensington.
The 1978 tax-cutting Proposition 13 in California has resulted in that state containing 23 out of 25 of the least affordable cities in the US. (“Most of California’s pro-growth momentum developed before Prop 13, and most of the housing price boom came after [it], while growth momentum was slowing. Also, Texas, the other of the two fastest-growing states, relies heavily on property taxes and is one of the most affordable states generally, containing four of the six most affordable cities.”).
Whilst an empty property tax as suggested would have some beneficial effect (the empty business property rate, on higher rated property, did some good), it would not be simple to implement, would provide plenty of loopholes and, because the percentage of long-term empty properties in the overall housing stock is small, it would not bring down house prices significantly by itself.
A complete rethink on property/land taxation is what is required.
In principle I thoroughly agree. I assume it would equally apply to holiday homes,as these are often acquired in popular areas like Cornwall,where houses are also often made much more expensive to local buyers than they normally might be in an area with such high unemployment .
Hi Richard,
It appears that your home has a self contained annexe, but it seems no listing for it appears on the VOA website. Are you paying Council Tax on this annexe?
Not that old one again?
Guido tried that, and for the record, I asked of all relevant authorities if I was paying the right tax and they said yes.
So stop wasting your time
Hi Richard,
I think previous questions were regarding the business rates. Public planning documents clearly show the previous owners applied to build a “self contained annexe” at your address. The VOA states “each self-contained unit will generate a council tax bill” so there should be two council tax bands listed at your address. If you’ve checked this with your council they say it’s not an annexe then let me know as I’m being getting charged two rates in a similar situation so I’d love to know the difference to save a few quid!
What an unhealthy interest you have in my affairs!
All I can say is I asked when I bought it and I asked since but if you send me the link you might never know – I could ask again
But what they told me last time was that it was not self contained and therefore it did not need to be separately rated
Thanks Richard, you must have a good VOA contact as mine as uprated the property, insists the converted garage could be made self contained so as far as they are concerned, that’s good enough to rate it separately just because there’s a telephone line to it.
Link is here:
http://www.west-norfolk.gov.uk/pdf/260704mins.pdf (last page)
I’ll link to this with my VOA case officer and hopefully they’ll change their mind! Inconsistency in the tax system is a pain 🙂 Got to be a lesson there somewhere.
Well, I don’t think I’ve seen that before
Based on your experience I’ll ask again
I thought that in the past the problem of empty property held for speculative purposes had, at least partially, been addressed by allowing squatting to be quasi-legal in the UK. I understand that more recently this practice has been ended through legislation and enforcement.
But one might rekindle the specter of this past practice by putting the following alternatives to the community of property speculators: pay taxes for the right to speculate (as set out in this blog) or open up your properties to legal (non-destructive, responsible, genuinely vacant, etc.) squatting.