The great garden tax: a ‘cocktail of misery’ or a fairer way to levy land?

Homes with gardens already command a premium in north London. North Road, Highgate. Photo: Polly Han

Homes with gardens already command a premium in north London. North Road, Highgate. Photo: Polly Hancock - Credit: Archant

The Conservatives claim Labour’s proposed land value tax could hike up taxes in homes with gardens, so what would it mean for green and leafy north London where land is already at a premium?

The Labour Manifesto has pledged to "consider new options such as a land value tax, to ensure local

The Labour Manifesto has pledged to "consider new options such as a land value tax, to ensure local government has sustainable funding for the long term," but there's little clarity on what such a tax would mean in practice. - Credit: PA Wire/PA Images

There’s been much tumult in the Twittersphere over a potential tax on grass, and it’s not the Liberal Democrat’s plan to legalise marijuana.

Social media was abuzz at the prospect of a land value tax proposed in the Labour Party’s manifesto.

According to Boris Johnson, the Institute for Public Policy Research has branded LVT a “tax on gardens”.

Dubbed the ‘garden tax’, LVT has found many opponents as a tax on the nation’s much loved green spaces, so synonymous with Hampstead and Highgate’s leafy lanes.

Labour aren’t the only ones proposing such a tax. The Green Party has in the past pledged to look at the possibility of a land value tax, as have the Liberal Democrats.

The Labour manifesto is opaque on the details of such a tax, stating only:

“A Labour government will give local government extra funding next year. We will initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term.”

Most Read

Foreign Secretary Boris Johnson called the policy a “cocktail of misery.”

Writing on his official Facebook page, he said: “Corbyn’s Garden Tax will hit you and your family by: Trebling your Council Tax bill. Sending house prices plummeting and plunging mortgage holders into negative equity. Forcing families to sell off back yards, paving over England’s greenery.”

Johnson also claimed tax on the average family home would increase 224 per cent due to the tax.

“The tax would fall hardest on areas with higher land prices, including London,” he added.

It’s no doubt that some of London’s homes bequeathed with ample gardens are in north London, part of the reason property prices are amongst the most expensive in the city. There are currently 1,191 homes with gardens on the market for sale in the borough listed with online platform, yet LVT is based on the value of the land, not the size of your garden.

Independent buying agent Henry Pryor agreed that Londoners would be disproportionately affected by the tax given the value of land in London.

He said: “Residents in north London can almost certainly expect to be some of the hardest hit by a Land Value Tax, which like the Mansion Tax that they proposed in their last manifesto, will be based on the underlying value of the property.”

However, Pryor explains that the policy has been touted for some time amongst economic circles as a fairer way to raise taxes, saying:

“Many would regard a Land Value Tax to be a much fairer way of ensuring that those who benefit from rising property prices through no direct effort on their part pay what Labour would regard as their fair share and the idea has considerable support from both academia and in political think tanks.”

Indeed, it was initially promoted by free market thinker and 18th century philosopher Adam Smith, whose works shaped much of modern Conservatism’s neoliberal stance.

The argument in LVT’s favour rests on the fact that since land is in fixed supply and its value is created by the community, the rental value it commands should be a source of public revenue.

The difficulty lies in valuing the land separately from the value of the buildings that stand on it.

The The Mirrlees Review, published in 2011 by the Institute for Fiscal Studies said: “The economic case for a land value tax is simple, and almost undeniable.”

The problems fall mainly in calculating the value of the land, with the report stating that “Moving from a property-based tax to a land-based tax would also create numerous gainers and losers.”

Some of those losers would be in the capital, Pryor goes on: “As with the changes made to Stamp Duty by the Conservatives in 2014 this proposal is unlikely to be popular with property owners in the most expensive parts of the country and London can expect to bear the brunt.”

The Labour Land Commission is unaffiliated with the Labour Party and presses for LVT, proposing a 3 per cent tax on the value of the land, applied to 55 per cent of the property’s value (100 per cent on vacant land), according to the Daily Express.

In Camden, the average house price (since the value of the land is as yet uncalculated) is £832,191, making for an average annual tax bill of £13,731 based on those figures alone.

However, the Labour Land Campaign argued on 31 May that claims taxes would be trebled by LVT were false.

LLC Chair Anthony Molloy commented that: “When a policy is being criticised, it is worth looking at who is doing the criticising. Nowhere is this more true than with LVT for which the few citizens who will lose out happen to direct not only the party of government but also—through their control of the media—the hearts and minds of many regular people who in fact stand to gain both individually and collectively by such a progressive change in fiscal policy.”

The LLC argues that big landowners would be the hardest hit, with 50 per cent of renting households paying no property tax, and most homeowners would pay less under the system than they currently do.

They argue that income tax at the basic rate and stamp duty land tax could also be phased out with the introduction of LVT as part of a wider reform of council tax.

“We will initiate a review into reforming council tax and business rates,” writes the Labour manifesto prefacing the discussion of LVT. The system has been adopted in Denmark and some states of the USA and Australia.

So do the vast garden-owners of Frognal, Church Row and The Grove have anything to worry about?

Probably not, since those in super prime, multimillion pound properties will most likely have enough spare cash to pay the claimed tax hike, even if it is to be believed.

Those who bought a house with a garden back in the days when such luxury’s came as standard might feel the pinch, but properties with green space already command a price premium.

For the rest of London, high land values will disproportionately affect the capital, but with little indication of how the tax will be calculated and only so much of a whiff of it in Labour’s manifesto, we’ll be watching this space come Thursday 8th.