Taxing land, better: New report and recommendations on tax on land and property

Policy and Practice Lead Kathie Pollard explores our advice to Scottish Ministers on land reform and taxation in our latest blog.

In 2020 the Scottish Government asked the Scottish Land Commission to provide advice on how land can be factored into its economic thinking and to explore new policy levers – including tax and fiscal reforms – that could help the economic recovery from the pandemic and support greater diversity of land ownership, particularly among communities, and ensure that is used for the benefit of greener, thriving local areas.

Tax could be a significant tool to support these ambitions but the way in which land and property are currently taxed does not fully realise this potential. Given that land comprises almost 60% of total net worth of the UK, increasing the role of land in the tax system could help ensure that this huge stock of wealth could be more productively used and more widely shared to support a more inclusive economy and increase overall wellbeing.

There have been calls for a universal land value tax and our previous work looking at the international experience of land value taxation found that there are strong theoretical benefits for this. However, in practice it is not quite that simple and there are a number of issues with which we need to contend.

Rather than introducing sweeping reforms for a single land value tax, our report makes the case for ongoing reform and improving the way in which Scotland taxes land. It offers practical advice and steps Scotland can take to steadily increase the role of land values in the tax base to help deliver Scotland’s land reform objectives and a wellbeing economy.

Although devolved powers limit the ability to use the significant tax levers such as capital gains tax to impact land use and ownership, the Scottish Government has several potential tax levers to help regenerate town centres, ensure that the move to net zero is fair and delivers wider benefits for local places, and support a more diverse pattern of land ownership.

With input from an expert advisory group, we looked at the opportunities and impact of changes to new and existing taxes on land and property to support a green and fair economic recovery. We also considered how tax reform could deliver a more productive and diverse pattern of land ownership in the long term. A set of principles were identified to ensure that proposals for changing the way land and property is taxed should be purposeful, place-based, encourage behaviour change, create value and minimise market distortion.

A logical starting point would be to bring all land on the valuation roll. We recommend that information on land ownership, value and use should be made available through a cadastral map (a map showing legal titles). Such a ‘one-stop shop’ approach to mapping land data could strengthen the role of land in the tax base and could improve the policy options open to the Scottish Government in the future.

We recommend that tax could play a role in bringing vacant and derelict sites back into productive uses such as housing or businesses. This could be done through applying additional reliefs on non-domestic rates (NDRs) and council tax for newly built properties on longstanding vacant sites, as well as giving local authorities the power to apply NDRs to newly derelict properties.

There is also a potential role for tax in emerging markets, such as carbon and natural capital, in creating the right balance of public and private benefit from future carbon values. We recommend that by putting all land on the valuation roll, we will get a better understanding of land values, make the market more transparent and allow policymakers to target future policies effectively. Additionally, Land and Buildings Transaction Tax could be used in this context.

We also recommend that the Scottish Government explores at a UK level a more progressive approach to the use of tax reliefs and exemptions in relation to land that would support diversification of ownership and the potential for an income tax relief to support the letting of agricultural land.

Most proposals for changes to land and property tax attract passionate debate and strong views which we can’t shy away from if want to explore how tax could help create more productive and inclusive places, a just transition and a wellbeing economy. We recommend that a national public conversation about local government taxation through the Citizens’ Assemblies could build consensus on the options for taxing land values.

Tax is a complex policy area. It is important that any changes are considered and evidence-led. Today’s report outlines opportunities for ongoing reforms so that the tax system can keep pace with the delivery of Scotland’s wider ambitions for land.