Conservative Think-Tank Backs Radical Shake-Up Of UK Tax System

by Robert Lee, Tax-News.com, London

26 July 2006

An influential group of MPs in the UK Conservative Party is proposing to sweep away a number of levies that it says contribute to the complexity and inequity of the British tax system, and replace them with a simple property-based levy tilted towards the wealthy.

A paper authored by chartered tax advisor Mark Wadsworth for the Conservative Bow Group proposes to abolish council tax, inheritance tax (IHT), capital gains tax on property sales and the TV licence fee and replace them with a 1% tax based on the value of all residential property, otherwise known as the 'Land Value Tax'.

The system would mean the tax burden increasing in the wealthy areas of London and the South East, where the average house price is in excess of GBP300,000, whilst reducing the tax burden on the poorer areas in the north of England, where the average house price is GBP129,000.

Under the proposal, the first GBP70,000 will be exempt from the tax, meaning that residential property in London would see an average annual tax bill of GBP2,370, slightly more than the current average council tax bill. In the north, the average property would see a tax bill of GBP590 - substantially less than the current average council tax bill.

According to the report, this system would help distribute the tax burden more fairly, whilst also reducing the complexity of the tax system by eliminating 'stealth taxes' and replacing them with a single transparent levy. For instance, IHT, a tax traditionally associated with the well-to-do, is now paid by 1.5 million estates, a figure set to rise to 4.2 million by 2020 as house prices continue to accelerate away from the annually adjusted IHT threshold, which now stands at GBP285,000.

The Land Value Tax is one of ten proposals contained in the report, which also includes a plan to introduce a 38% 'flat tax' on all incomes above GBP11,000 per year. This would greatly reduce the amount of tax paid by those on low incomes, while a single worker earning GBP40,000 would pay the same amount of tax as under the current income tax system.

Wadsworth claims that his taxation proposals would be revenue neutral. However, they are unlikely to be embraced by a Conservative Party leadership that has been very careful not to make any rash tax promises.

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