Ordinary investors are being hit by a wealth tax in the form of land taxes, according to Gross Waddell Associate Director Raoul Salter.

Mr Salter said that as the effects of Land Tax for 2019 started to bite, it was time to question the impact of the tax and how it was levied.

At a glance:

• Associate Director of Gross Waddell calls for an overhaul of the land tax system
• He says current system operating as a wealth tax and should be replaced by base level of tax across the spectrum
• Landowners under this system would pay premiums when property values increase

He said governments were using land tax to make up for a reduction in stamp duty and the limitations placed upon foreign investment but that the design of the tax was fundamentally flawed.

“Given the 'cooling measures' that have been instituted over recent years including additional imposts on foreign investors and the elimination of stamp duty savings for 'off the plan' purchases, the volume of sales has reduced markedly resulting in less stamp duty income for the Government to balance its books,” Salter said.

“It is no surprise then, that land tax revenue is essential, and any increase is required to offset the reduction in stamp duty revenue.”

However, Mr Salter said the current system operated more like a wealth tax and called for a base level of land tax across the spectrum with higher rates of tax imposed based on increases to property values.

He said such a system could be described as a “betterment” tax.

“It is fundamentally flawed to be taxing landowners on the basis of notional value, particularly where a property may be encumbered for some years via a lease,” Salter said.

“Likewise, if the owner is not realising the value during the period in which the tax applies it is inequitable.

“It would be a fairer system to have a base level of land tax applied across the spectrum and a second tier of tax that would be applied in the event that one sold a property in any given year where the value was above the base level.

“This could work as a form of Betterment Tax where a fee is levied on land that has gained value - usually defined as being where public infrastructure investments have been made.

“Under a Betterment Tax styled system, if someone sells in a year where the property value is up, they pay a premium, if the price is subdued then the baseline tax would be the only tax payable.”

Mr Salter said such an approach would be both fairer and more logical but said he could see no sign of any appetite for change from government.

Gross Waddell is a commercial real estate agency which has operated for more than 24 years in the retail, office, industrial and development property sectors.

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