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oh dear: British property tax ‘highest in world’

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    oh dear: British property tax ‘highest in world’

    British property tax ‘highest in world’
    By Vanessa Houlder and Chris Giles

    Britain has the highest property taxes in the world, according to figures that are likely to fuel controversy about the burden of council tax and business rates.

    As a percentage of income, British property prices were almost 70 per cent higher than the international average in statistics for 2005 from the Organisation for EconomicCo-operation and Development.

    The statistics counter a widespread assumption that property is relatively lightly taxed in the UK. This perception is based on the absence of value added tax or, for a main residence, capital gains tax.

    But the OECD figures are unlikely to stop policymakers calling for further rises in taxes on property. They are easy to collect compared with taxing wealthy people and companies, which can move to lower-tax jurisdictions.

    Since the Labour government came to power, Gordon Brown has increased stamp duty rates on expensive properties and failed to increase inheritance tax thresholds in line with the rise in property prices.

    Though the chancellor has found two new avenues to tax property, neither has been included in the statistics.

    “I think the level of property taxes will increase,” says Chris Sanger, head of tax policy at Ernst & Young, the professional services group, and a former top Treasury adviser. “Tax competition means it will become harder to tax mobile elements like capital and profits.”

    Although property taxes are difficult to evade, they are considered likely to encounter resistance from voters.

    Since 1965, the role of property taxes had diminished in most industrialised countries, the OECD said, “possibly in part as a result of voter resistance against such highly ‘visible’ taxes and a failure to maintain up-to-date the inflation-adjusted valuation of the tax base”.

    Across the political spectrum there is interest in reforming residential property taxes to make them more closely linked to house prices than council tax, which is capped for high-value properties and based on outdated property values.

    The Liberal Democrat’s recent tax policy document proposed the abolition of council tax and described the 1 per cent property tax operated by Denmark as a “satisfactory” model. The Bow Group, a centre-right think tank, proposed a 1 per cent tax on the value of residential property to replace other taxes.

    Sir Michael Lyons, who is conducting a review into local government finance for the government, has said he may consider “more radical” options, including the new Northern Irish system of local taxation, to be introduced next April, which is based on a charge of 0.63 per cent of a home’s capital value.

    Council tax has outstripped business rates as the biggest contributor to property taxes since it was it was brought in as a replacement to the unpopular poll tax in 1993. The tax take rose from £9bn in 1995 to £20bn in 2004, as councils struggled with costs rising more quickly than central government grants.

    The UK also tops an international comparison of property taxes using the OECD’s broader definition of property taxes, which includes inheritance tax, stamp duty on shares and property, and wealth taxes. Using this measure, the share of total taxes rose from 10.4 per cent to 12 per cent between 1995 and 2004, while the average inched up from 5.5 to 5.6 per cent.

    The rapid growth of house prices has fuelled a debate on whether there should be new taxes on housing. In a discussion paper of

    2003 the Treasury said that investment in housing was “relatively lightly taxed compared with other investments”.

    But the Institute for Fiscal Studies, an independent think-tank, has challenged this assertion. “Raising current housing taxes or changing their structure may provide an enticing way for the government to raise revenue in the future,” it said, “but justifying it on the basis that housing is ‘undertaxed’. . . seems flawed.”

    #2
    I've been telling this board for ages: when you add it all up, the taxes in Denmark are lower than in the UK.
    Insanity: repeating the same actions, but expecting different results.
    threadeds website, and here's my blog.

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      #3
      Long on headlines, short on figures.

      What do they actually mean? Do they mean that the total taxes levied on property is higher, or that the amount collected from property taxes is higher.

      If it's the latter, then the reason for this is simple. Most Europeans don't buy a house very often, once in their lifetime is the norm. And why is this?Because the taxes that they have to pay for doing so are very high. High taxes on buying propery stifle mobility, they don't collect extra revenue.

      tim

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