Monday, 26 November 2012

A Simple Explanation.

Ronan Lyons did a report for the Smart Taxes group in December 2011 on Site Value Tax.

This  section  outlines  the  economic  rationale  and  other  key  features  of  site  value  taxation. 

Site  Value  Tax  is  a  charge  on  the  unimproved  value  of  land,  i.e.  it  is  not  directly  affected  by  physical   capital   built   on   the   land   (such   as   buildings   or   other   improvements).   It   is   instead   a   tax   purely   on   the   value   of   location.   It   is   expressed   as   a   percentage   of   the   value   of   the   site   and   is   typically   payable   annually.   As   outlined   below,   the   idea   of   a   Site   Value   Tax   (SVT)   on   the   value   of   a   plot   of   residential   land  has  a  long  pedigree  in  economics.
To   start   with   an   example,   suppose   a   three-­‐bedroom   semi-­‐detached   property   in   one   particular   location is   worth  €140,000. The build cost is €125,000 while the plot if land size 0.03 acres is worth €15,000. This  means  the  value  of  an  acre  in  that  location  is approximately €500,000. A Site  Value  Tax if 2% per annum would mean an €300 tax for this property (2% of €15,000). A  two-­bedroom  or  four-bedroom  property  on  the  same  site  would  be  subject  to  the  same  tax  bill,  as  they  differ  in  value  only   by  the  built  capital and  not  by  the  underlying  value  of  the  land. 

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