The impact of a tax on house values on low income households

A tax on property values is deeply regressive.  As lower income households would have greater difficulty in paying the tax they would be more likely to have to sell up which would be a very perverse result creating greater inequality in society.  The analysis clearly indicates that any tax for local government services should be based on earnings levels.

 

Introduction

One of the many features of the United Kingdom is its strange persistence in looking to the past to provide policy.  Traces of the past linger on in other ways particularly when it comes to taxes to fund local services and alternatives to the current system. The idea of a tax based on the value of a dwelling has been mooted. A figure of 0.5 % could be an option.  So what would be the impact of this on households of varying earnings levels?

 

Lets look at a property valued at £350,000.  A 0.5% charge would produce a tax bill of £1,750 a year. 

 

We can calculate this as a percentage of both gross and net income.  The tables set out tax liability by gross and net earnings levels for a single person and two-person household. It is assumed for the purpose of this analysis that in a two person household has double the earnings of a single person household. In reality of course it is likely that individuals would have different levels of earnings.  Another point to consider is that earnings from savings, shares and property are not liable for National Insurance which means that individuals with significant amounts from such sources have higher levels of net income and hence a lower rate of property tax.

 

Results

The analysis indicates the regressive nature of a tax based on a property value. 

 

One-person household. 

Lower income households pay more as a proportion than higher income households.  The cost in property tax for an individual with gross earnings of £20,000 (net £17,920) would be 8.8% (9.8%).  For an individual with earnings of £120,000 the charges would equate to 1.5% (2.3%).

  

Income		Income	Charge	Charge
Gross	Tax NI	Net	Gross	Net
£	£	£	%	%
20000	2080	17920	8.8	9.8
40000	7680	32320	4.4	5.4
60000	14643	45357	2.9	3.9
100000	31443	68557	1.8	2.6
120000	43843	76157	1.5	2.3

 

Two-person household

The data clearly shows that a household with two adults is far better able to absorb the cost of the tax although again lower income households pay more as a proportion than higher income households.

 

Income		Income	Charge	Charge
Gross	Tax NI	Net	Gross	Net
£	£	£	%	%
40000	4160	35840	4.4	4.9
60000	9760	50240	2.9	3.5
120000	29286	90714	1.5	1.9
200000	62886	137114	0.9	1.3
240000	87686	152314	0.7	1.1

Tables. 

 

One-person household

  

Income		Income	Charge	Charge
Gross	Tax NI	Net	Gross	Net
£	£	£	%	%
15000	680	14320	11.7	12.2
20000	2080	17920	8.8	9.8
25000	3480	21520	7.0	8.1
30000	4880	25120	5.8	7.0
35000	6280	28720	5.0	6.1
40000	7680	32320	4.4	5.4
45000	9080	35920	3.9	4.9
50000	10480	39520	3.5	4.4
55000	12543	42457	3.2	4.1
60000	14643	45357	2.9	3.9
65000	16743	48257	2.7	3.6
70000	18843	51157	2.5	3.4
75000	20943	54057	2.3	3.2
80000	23043	56957	2.2	3.1
85000	25143	59857	2.1	2.9
90000	27243	62757	1.9	2.8
95000	29343	65657	1.8	2.7
100000	31443	68557	1.8	2.6
105000	34543	70457	1.7	2.5
110000	37643	72357	1.6	2.4
120000	43843	76157	1.5	2.3

  

Two-person household

  

Income		Income	Charge	Charge
Gross	Tax NI	Net	Gross	Net
£	£	£	%	%
30000	1360	28640	5.8	6.1
40000	4160	35840	4.4	4.9
50000	6960	43040	3.5	4.1
60000	9760	50240	2.9	3.5
70000	12560	57440	2.5	3.0
80000	15360	64640	2.2	2.7
90000	18160	71840	1.9	2.4
100000	20960	79040	1.8	2.2
110000	25086	84914	1.6	2.1
120000	29286	90714	1.5	1.9
130000	33486	96514	1.3	1.8
140000	37686	102314	1.3	1.7
150000	41886	108114	1.2	1.6
160000	46086	113914	1.1	1.5
170000	50286	119714	1.0	1.5
180000	54486	125514	1.0	1.4
190000	58686	131314	0.9	1.3
200000	62886	137114	0.9	1.3
210000	69086	140914	0.8	1.2
220000	75286	144714	0.8	1.2
240000	87686	152314	0.7	1.1

 

 Notes

Other useful posts

 

https://www.cornwallecon.com/post/council-tax-built-in-inequalities

https://www.cornwallecon.com/post/council-tax-alternatives-which-should-be-non-starters

https://www.cornwallecon.com/post/a-fair-tax-system-for-local-service-provision

 

Conclusion

A tax on property values is deeply regressive.  As lower income households would have greater difficulty in paying the tax they would be more likely to have to sell up which would be a very perverse result creating greater inequality in society.  The analysis clearly indicates that any tax for local government services should be based on earnings levels.

 

Sources

PayPrecisePremium UK Salary Tools.

https://payprecision.co.uk/take-home-100k/