Land Value Tax (Properly) Explained

Originally published on Henry George Foundation on October 14, 2026. Republished on Progress.org with permission.

A few weeks ago the Institute for Fiscal Studies (IFS) released a podcast video on the subject of land value taxation. The IFS is an independent UK economics research institute that specialises in UK tax and public policy, producing both academic and policy-related analysis and recommendations. Its aim is ‘to promote effective economic and social policies by understanding better their impact on individuals, families, businesses and the government’s finances’. The institute is widely, though by no means universally, regarded as authoritative, rigorous, and politically independent in its public‑finance analysis. Its analysis and commentary are influential in shaping how policymakers and journalists understand the functioning and shortcomings of the UK tax and benefit system, even if not many of its specific policy recommendations have been implemented.

My own attitude towards the IFS is on the whole quite positive: Although I have some sympathy with those who question its objectivity and ideological stance, as well as the narrowness of its microeconomic ‘public finance’ perspective, I think its analysis of the shortcomings of the UK tax system is worth studying. Most of the videos in the ‘IFS Zooms-in’ series I have watched in recent years I have found to be clear and informative, with the presenters making valuable contributions to the tax policy debate despite having to restrict themselves from delving too deeply into the subjects under discussion in order to keep the content accessible for a larger audience. The three experts featured in this video (Stuart Adam, Ben Zaranko, and IFS Director Helen Miller) are all highly informed and qualified economists and tax experts who have produced a huge amount of high quality content and analysis over the past decade.

This particular video, however, did not in my view meet the high standards one would normally expect from the IFS. The economic analysis seemed to me to be superficial and simplistic, and parts of the discussion were irritatingly misinformed and misleading. This is important, and merits a Substack article in response, because the subject of land value taxation is currently much more prominent in the UK media than it has been for a very long time. Poor quality content from an organisation with the credibility of the IFS could result in the public being misinformed, and this should be addressed.

Let me try to explain why I’ve taken such a dim view of their latest contribution to the LVT debate. In a nutshell: The video follows a pattern I’ve been noticing quite a lot lately in attempts (whether in writing or video format) to explain the potential benefits of LVT, which is that the case for introducing it is reduced to a narrow set of considerations relating to its supposed economic efficiency. When the (not inconsiderable) problems associated with the practical implementation and political feasibility of the tax are then discussed, the overall case for introducing the tax then seems pretty flimsy, to say the least.

I made some points along these lines in my response to the Tax Policy Associates report on the practical implementation of LVT, which, while an excellent piece of work, failed in my view to state the most powerful arguments in favour of LVT. In the case of the TPA report, this was a relatively minor point, since the main aim of the report was to analyse how a land value tax would work in practice, not to make the case for this form of tax. In the case of this ‘IFS Zooms In’ video, however, the failure properly to explain the argument in favour of introducing an LVT becomes a major defect that has to be examined and rectified.

The discussion in this video seems to me to be deficient in two key respects: First, the narrow set of economic efficiency arguments in favour of LVT are taken to constitute the entire economic case for the introduction of this form of tax; Second, questions concerning the distributive impact and fairness of LVT are reduced to a myopic focus on the point of transition from the current system to the post-reform system. Since the economic case for LVT is truncated and radically incomplete, the political case for reform seem utterly unconvincing.

LVT is economically efficient!

The main economic efficiency-based reasons for the popularity of LVT among economists are set out reasonably clearly at the beginning of the video: Economists like LVT because the overall supply of land is basically1 fixed and because each individual plot of land is fixed in one place and cannot be moved to a different location; this means that neither the total amount of land nor the locations of each individual plot can be changed in any way in response to its value being taxed, which in turn means that unlike other taxes, a recurring annual tax on the value of land generates no disincentives or other distortions.

That’s pretty much it: Economists like LVT because it is the tax (or one of the taxes2) that does the least to distort people’s incentives to work, save, or invest capital.

There then follows an acknowledgement that the value of land does not derive from economic activity undertaken specifically by the people who happen to own it. New schools, or roads, or railway stations in particular locations can increase the value of land in those locations, but building a house on a plot of land cannot increase the value of that plot of land. More is said about the creation of land value later in the video, and I will have more to say on this point later in this article.

But is it fair?

Things then start to go downhill very rapidly when an abrupt transition is made from the argument in favour of LVT (it is economically efficient) to the question of the distributive impact of LVT – or rather, the distributive impact of the transition from the current system to a reformed system that includes some form of LVT. Ideally, a discussion of the distributive effects of LVT would feature a forensic analysis of who would gain from such a reform, who would lose, and what (if anything) might be done to soften the blow for the losers, followed by an acknowledgement that we are talking initially just about the transition from the current system to the reformed system, not about the ongoing distributive effects of a land value tax that has been fully implemented and integrated into the existing system.

What we get, instead, is not much more than an unsatisfactory attempt at answering a single question: Who loses from a land value tax? Replying directly to this question, Stuart Adam points out, correctly, that LVT liabilities are built into the value of taxed land on the day the tax is announced – at least if the announcement is assumed to be credible. In other words, the amount of tax a landowner must pay for a particular plot of land is capitalised in the form of a lower selling price for this plot. Land that comes with an annual tax bill attached to it will not be as attractive to potential future buyers as land with no tax bill attached to it. This means that it is existing owners who lose from LVT. Future owners will, of course, have to pay the tax, but the price they pay for the land will be correspondingly lower.

Helen Miller then chips in by pointing out that if LVT is capitalised into the value of land on the day it is (credibly) announced, then it makes sense to think of it as a one-off windfall tax on people who own land at that particular point in time. The question of the fairness of LVT can then be boiled down to the following concrete question: To what extent do we want to raise revenue from a one-off wealth tax on land owners as opposed to other groups of people? This, Miller suggests, is a question ‘for political people to judge’. Stuart Adam affirms that this is indeed the right way of thinking about the fairness of LVT, while also making the point that LVT will ‘end up basically hitting people who are at the peak of their wealth holdings, so around retirement age at the point you announce it’. As Adam then suggests, ‘people can take different views as to how fair or unfair that is’.

A brief recap: LVT is economically efficient because it does not distort people’s incentives to work, save, or invest capital; it is also a one-off wealth tax that will hit elderly pensioners particularly hard, and whether this is fair or unfair is a political question, and not a matter of economics.

Entering murkier territory…

But our tax policy experts are aware that there is more to the question of fairness than this, acknowledging that there are some people who think it is worth distinguishing between value that is created privately and value that is created socially. Though the precise nature of this distinction between different kinds of value remains rather hazy, it is acknowledged that value can plausibly be said to be created by ‘society’, rather than by individual landowners, through the public provision of infrastructure, schools, reservoirs and so on, and through the economic activity that surrounds valuable plots of land. A famous speech by Winston Churchill, and an American political economist by the name of Henry George are mentioned in this context.

Here, however, our attention is drawn to another (supposedly) important distinction: the difference between the value of the stock of land versus the uplift in the value of the land. This distinction is important, we are told, because imposing a tax on the stock of land - the value of land as it is today - is very different from imposing a tax that captures (part of) the uplift in land value created by future economic activity and public investment. A tax imposed on the owner of a plot of land that increases in value as a result of everything going on around it amounts to society as a whole (via the government) taking a share of what society has created. The absence of such a tax would leave all of this value in the hands of the landowner, meaning that the landowner would benefit at the expense of the rest of society.

By contrast, the absence of a tax imposed on the value of land as it is today does not mean that landowners benefit at the expense of the rest of society, since many existing owners have purchased their land for a fair market price that reflects all of the past economic activity and public investment that has created the land value. This means that existing owners who purchased their land at a fair market price are not the people that benefitted from the uplift in land value that occurred before they became landowners – they haven’t benefitted from anything they haven’t already paid for.

This does not apply, of course, in the case of people who own land that has been passed on to them down the generations (though we are not told how many generations must be involved to make this point relevant). But someone who ‘worked really hard’ and bought their land for a fair market price has not benefitted at others’ expense until the value of their land increases as a result of surrounding economic activity and public investment.

The upshot of all this, we are told, is that the argument for taxing future uplift in land value seems much stronger than the argument for taxing the value of the stock of land. Most ‘landowners’ are simply people who own their own home, many of whom will be vulnerable, elderly pensioners living on low incomes and in poor health. Imposing a tax on the value of the stock of land may well be economically efficient, but it is up to ordinary people to judge whether a tax that hits people who have invested their hard-earned savings in what is now the family home is fair or unfair.

The obvious flaw in this analysis is illustrated vividly and concretely in the next section through the contrasting stories of Henry and Georgina. (Feel free to skip forward to the final paragraph of the section if the problem already seems obvious enough to you).

Some will certainly lose….

Born in 1960, Henry graduated from university (debt free and having enjoyed the relatively comfortable living provided by a maintenance grant) in the early 1980s. With an undergraduate degree, and living in the relatively prosperous South East of the country, Henry found a well-paid job that offered good opportunities for career advancement. He worked extremely hard and saved a substantial proportion of what he earned, so that within about 10 years he was in a position to buy his first house, within easy commuting distance of London, getting his foot firmly on to the first rung of the property ladder!

At this time, in the early 90s, house prices had fallen somewhat from their peak in 1989, driven down by high interest rates, a deepening recession, and the fallout from Britain’s expulsion from the Exchange Rate Mechanism. Because Henry had worked hard and been disciplined in spending his hard-earned income, he only needed to take out a small mortgage, which he was able to pay off within a few years. As the outright owner of his property, his hard work, disciplined saving, and shrewd decision to invest in residential property were richly rewarded when house prices started to rise in the late 1990s due to sustained economic growth and falling interest rates. Because the Council Tax, which had been introduced in 1993, was (and still is) based on 1991 house prices, the explosive growth in house prices in the 2000s was not checked in any way by taxation.

After falling briefly as a result of the Global Financial Crisis, house prices were driven up again throughout the 2010s by ultra-low interest rates and the reduced supply of new housing, with the ‘Help to Buy’ policy introduced in 2013 by the Coalition government further boosting the growth in prices. Although prices have now, in 2026, fallen slightly in some areas of the country from their peak in 2022 (particularly in central London), they remain extremely high by historical standards. The value of residential property accounts for around 40% of household wealth and well over 50% of total UK net worth. Henry’s house, which he bought for around £90,000 in the early 90s, is now worth around £450,000, considerably more than the value of his pension, which he has just started to draw on having retired at the end of September 2026.

Georgina’s story is rather different. Born in 1990, she graduated from university in the aftermath of the GFC in the early 2010s, bearing the heavy burden of around £20,000 of student debt, having worked part-time throughout her studies to make ends meet. Georgina found a job as a teacher at a school in central London soon after graduating, working hard throughout the 2010s and 20s. However, although she was promoted to the position of head teacher after only twelve years, stagnant productivity throughout the 2010s and 20s meant that Georgina’s salary increases were barely sufficient to cover the rising cost of living, with increasing childcare costs, energy bills, and rent paid for her flat in the commuter belt taking an ever-larger chunk of her monthly income. To make matters worse, both Georgina and her husband (Lloyd, also a teacher) were now higher rate tax payers, so most of the child benefit they were entitled to claim was clawed back by the tax system.

Despite these challenges, Georgina and Lloyd were able to save a portion of their income, and eventually (with the help of a loan from Georgina’s father) found themselves in a position to take the opportunity offered by the Burnham government’s ‘Your First Home’ policy, the latest iteration of the ‘Help-to-Buy’ scheme originally introduced in 2013. Needing only a deposit worth 2.5% of the value of the flat they planned to buy, and with the help of a loan from the government worth 20% of the property’s value, Georgina and Lloyd were thrilled when they were able to get their feet on the property ladder in the Spring of 2027! Their flat in Islington – which they acquired for £520,000 – allowed them both to live in reasonably close proximity to the schools where they worked, and would presumably also represent a decent financial investment.

We can only imagine their shock on hearing, in the Autumn of 2027, that a land value tax was to be introduced from the beginning of 2028, replacing the Council Tax and Stamp Duty Land Tax. Not only did they feel aggrieved at facing a huge tax increase (around £5,600 in LVT compared to their previous CT bill of £2,600)3, having already paid around £16,000 of Stamp Duty when they had purchased the flat only a few months previously, but it very quickly became clear that their flat would lose a great deal of its value as a direct result of the new tax. Far from being an investment, their property had suddenly become an additional financial burden on their already stretched resources.

Fortunately for Georgina and her husband (and lots of people in similar situations), it transpired that the new tax was to be introduced at different regional rates across the country, and would be phased-in gradually over a period of 10 years, with a credit for recent payments of Stamp Duty to be applied during that period. This meant that they would face a much smaller initial tax increase than they had feared (though their property tax burden would nevertheless rise substantially over the next decade). While they could appreciate that the abolition of the Council Tax and Stamp Duty would benefit lots of people in less well-off parts of the country, and they had a vague understanding that the new tax was economically more efficient than the taxes it had replaced, they still felt somewhat hard done-by at being stuck with a higher tax bill and a depreciating asset. If only a way could be found to reduce the amount the couple had to fork out each year on income tax or NICs, they (and presumably many thousands of people like them) would feel much less aggrieved…

But what about Henry? He, too, would presumably feel aggrieved at suddenly having to pay a lot more tax on the home he had owned for so many years. His situation was in some ways even more shocking than that of Georgina and Llloyd. After all, he had only recently retired on a pension which, while very reasonable, was far less than the salary he had previously been earning. To make matters worse, a few years ago he had taken out an equity release on his property so he could afford to provide a loan to enable his daughter and her husband to buy their own home. In any case, he had worked hard all his life and invested his savings in his property in good faith, on the assumption that the rules would not suddenly be changed. Surely he wouldn’t now be forced out of the family home and deprived of the financial asset in which he had invested so much time and money?

Fortunately for Henry (and many thousands of people in similar situations), he would not be forced out of the family home. Anticipating just such a problem when they had designed the implementation plan for the new tax, the government had built safeguarding mechanisms into the reform so that situations like Henry’s would be avoided, or at least mitigated as far as would be reasonable. People in Henry’s situation could choose to defer payment of the difference between their old Council Tax bill and their new LVT bill. Payments could be deferred until the property passed to a new owner, at which point part of the equity in the house (equal to the total value of the deferred payments) would be transferred to the state.

Henry still felt rather hard done-by, of course, but at least he could feel secure in his home for as long as he chose to. If he was truly honest with himself, he had to admit that he had been profoundly lucky to have had the chance to acquire the house when it was still a fraction of its current value, and that he had lived in it essentially rent-free for more than two decades. It was true that his daughter would inherit a much less valuable asset as a result of the introduction of the new tax, but given the dismal state of the nation’s finances, that didn’t seem too unreasonable.

The contrasting stories of Henry and Georgina highlight the point that when evaluating the fairness of a tax on the stock of land, it matters greatly how long individual homeowners have been in possession of their assets, and how the new tax is to be implemented. Henry and Georgina would both lose out financially from the introduction of LVT as a replacement for existing residential property taxes. But in both cases, their losses would be reduced by the regional LVT rates and the gradual phase-in of the tax. Henry’s losses would be further mitigated by the availability of the option to defer payment.

But many others will gain….a little

How might these losses be justified? One obvious possible justification would be the significant financial gains that a switch to LVT would deliver for millions of people across the country. Consider, for example, the story of Mason and Daphne, both born in 1980. Mason and Daphne both graduated from university in the mid 2000s with several thousand pounds worth of student debt to pay off (tuition fees having been introduced a few years previously). With close family ties in the small town in North Devon where they were born, they decided to take jobs in the local area, having no desire to live or work in London. Even after getting married, the combined earnings of Mason’s salary as a lecturer at a local college and Daphne’s salary as a nurse at a local hospital made it extremely difficult to make ends meet. For years they could only just about manage, and were only able to save a small proportion of their annual income.

Nevertheless, with the help of loans from their parents, and with interest rates at rock bottom in the aftermath of the Coronavirus pandemic, Mason and Daphne eventually found themselves in a position to buy a small house. Not only were they now paying less in mortgage payments than they had previously been paying in rent, they were also profoundly grateful to have the security that homeownership conferred. Daphne had been growing increasingly anxious at the prospect of the couple being forced to move out of their rented property, after hearing stories of friends who were constantly being evicted from their rented homes, some even becoming homeless as a result. It was an immense relief finally to be free from the fear of being evicted and becoming homeless.

When Mason and Daphne heard about the policy to introduce LVT, they were initially somewhat sceptical - a new tax would surely mean higher tax bills, right? This was a matter of some concern to them, given that they had recently had to refinance their mortgage at a much higher rate of interest, their house having gained almost no value since they had purchased it 5 years previously. However, they soon learned that in their case, as in the cases of millions of people up and down the country (about 80% of the population, in fact), their new LVT bill would be significantly lower than their current Council Tax bill.

As it turned out, when the new tax was actually introduced at the beginning of 2028, their new bill was not as low as they had been led to believe. Part of the reason for this, they learned, was that the new tax was being introduced at rates which varied from region to region, with the rate in North Devon somewhat higher than rates in wealthier parts of the country. The proposed changes were also being phased in gradually over a period of years, so that those living in areas of the country where house prices were higher than average would not lose out too much from the reform. Another reason why their LVT bill was higher than expected was that the government had to find a way of covering the shortfall in LVT receipts that resulted from the need to allow those living in more expensive parts of the country to defer their payments so that they did not have to move to a cheaper area or smaller house.

While Mason and Daphne (and millions of people like them) would, of course, have greatly appreciated a more substantial tax cut to help them make ends meet, they could also understand that it was necessary to compromise in order to ensure that people facing tax rises were not hit too hard. It seemed fair that over time, those who had done nothing to earn or create the enormous increases in the value of their property since the mid-1990s (or in some cases since the early 1970s) would - without being forced out of their homes - be required to contribute a proportion (though nothing remotely like the entirety) of this unearned windfall to the public finances, which were, after all, now stretched to the absolute limit (partly due to ever increasing expenditure on health and social care for an aging population). And when Henry, Georgina, and Lloyd were honest with themselves, they, too, could understand why the majority of the population felt this way.

Join the club - if you can afford the membership fee!

What these stories highlight is that even if LVT does (at least initially) take the form of a one-off wealth tax that hits people who happen to own land at the time the tax is announced, it does not follow from this that the argument for imposing a tax on the value of the stock of land is any weaker than the argument for taxing the uplift in land value – provided that the former is implemented in such a way that sudden or dramatic financial losses are mitigated as far as is reasonable. The key point is that many of the people who happen to own land at the time at which the LVT is announced have benefitted at the expense of the rest of society because the value of their asset has increased – sometimes quite dramatically – as a result of surrounding economic activity and public investment.

Taxing only the uplift in land value would leave the bulk of the phenomenal uplift in the value of land that has occurred since the late 1970s in the hands of people who cannot claim to be responsible for creating it. Doing this would mean forcing the rest of society to pay significantly more tax than is necessary – whether this takes the form of Council Tax, NICs, income tax, VAT, or any other tax that could be reduced if the value of the stock of land is taxed appropriately. Imposing a tax on the stock of land is a way of clawing back some of the vast winnings that have been claimed by various kinds of landowner over the past 50 years or so.

Acquiring land (which for most people means buying a house) is in some ways like buying into a cartel: the financial returns to landownership constitute monopoly income in much the same way that the returns to the members of OPEC constitute monopoly income. Unlike the members of a cartel, who agree to raise or lower output in order to manipulate the price, landowners cannot increase the supply of land and do not coordinate with one another to reduce supply. Nor can existing landowners exclude non-owners through collective action (there are simply too many of them), or collude to set the price of access. The point, however, is that landowners don’t need to be able to do any of these things in order to extract a monopoly income from their assets. Since access to land is naturally restricted by the fact that its supply (especially in particular locations) is fixed, existing landowners collectively hold a monopoly over access to geographic space - the only way to become a landowner is to ‘buy out’ an existing member of the privileged club.

The huge gains that flow to landowners when house prices rise derive not from what they have paid to acquire their properties, but rather from the taxes and productive contributions made by anyone who has been economically active. People who buy land at market value (whether or not they have worked hard in order to do so) are thereby compensating the previous owner for relinquishing their exclusive legally enforced right to control access to this particular location – they are not compensating society for the economic advantages that make land in that particular location valuable in the first place.

It is important to emphasise that it is not only owner-occupiers and private landlords – that is, private individuals who hold the title deeds to specific properties - that benefit from membership of the landownership club. To be a ‘landowner’ means to be someone who is in a position to claim a slice of land rental income, which can take the form of bankers’ bonuses, executive remuneration, and inflated corporate profits, as well as income derived directly from renting and selling property. In the context of an analysis of the distributive effect of LVT, the landowning class includes the employees and shareholders of corporations that own substantial amounts of land, the owners of Real Estate Investment Trusts (REITs), and, most importantly, the employees and shareholders of financial institutions that provide finance for mortgages.

A clearer appreciation of the true extent of the landowning class would make the task of building political support for a genuine land value tax - by which I mean a tax on the value of the existing stock of land - considerably less challenging. A tax on future uplifts in land value might do nothing to reduce the future gains made by banks, REITs, and other institutional investors. A formalised replacement for Section 106 agreements, for example, would tax only the uplift created when planning permission is granted. Such a tax cannot be capitalised into lower house prices (if it were, then there would be no uplift to tax). The share of future increases in land value claimed by financial institutions would therefore remain entirely unaffected. A tax on the value of the existing stock of land, by contrast, would reduce both the past windfall gains enjoyed by homeowners and private landlords and the future windfall gains accruing to institutional investors and mortgage providers.

Economics is about efficiency and equity

And this highlights what seems to me to be the key problem underlying the entire discussion in this ‘LVT Explained’ video. After introducing the topic and explaining what LVT is, our experts explain why LVT is considered to be one of the most economically efficient forms of tax. They then turn their attention directly to question of the fairness of LVT, which is, as they suggest, a matter of politics, not economics. The implication of this sudden switch from the issue of efficiency (which has to do with economics) to that of fairness (which has to do with politics) is that the economic analysis of LVT concerns only the issue of efficiency. The question of equity - the distributive impact of LVT – is only considered by our tax experts as a matter of politics (merely a question of fairness), not as a matter of economic analysis. This is reflected in their myopic focus on the character of LVT as a one-off wealth tax that hits current landowners at time at which the tax is announced, and their almost total disregard for the role of LVT as an ongoing tax on the value of land as it is continually being created.

The discussion of the distributional impact of LVT in this video is simply far too superficial and simplistic. A comprehensive and informed analysis would need, for example, to at least touch on the role that LVT might play in easing the housing shortage and bringing down rents. And while our experts do emphasise the economic efficiency argument for LVT, this too is inadequate. No mention is made of the way in which the radical under-taxation of residential land is likely to be implicated in the UK’s longstanding productivity problem, which is itself a key part of the explanation for more than a decade of very low wage growth in the UK. Our experts seem unable to grasp that although the UK has high property taxes as a proportion of GDP, it does not necessarily follow from this that land is also heavily taxed.

This is the kind of economic analysis that an organisation like the IFS should reasonably be expected to provide, or at least touch on, even in a short, 50-minute long video. In this particular discussion, the complex nature of the equity/efficiency trade-off that LVT entails is almost entirely obscured from view, and the subsequent political analysis concerning the fairness of LVT is misinformed and misleading as a result.

By the time our experts turn their attention to the thorny issues of valuation, what to do about farmland, the interaction of LVT with the planning system, and so on, one starts to sympathise with the person who opined in the comments below the video that “the more you talk about it sounds bloody stupid”. Quite so4.

In the remainder of the video our experts make a number of points and claims that are puzzling, misleading, or even downright wrong (such as the claim that accurate valuation of land matters only for the fairness of the tax and not at all for its efficiency). However, this article is long enough already, so I’ll leave these to the Youtube comments. The main conclusion I would draw is that if the case for introducing LVT is reduced to the argument that economists like it because it’s efficient, then the task of making it politically feasible is already doomed.

If you’ve watched the video, I’d be interested to hear what you think of it. Have I been too harsh? Am I the one who doesn’t properly understand LVT? Or are my criticisms justified? Let me know what you think by leaving a comment.