By Lorne MacLeod

 

LAND is our most valuable asset and we need to make sure we are making the most of it for everyone, especially in Scotland’s post-Covid recovery.

Scotland will need to ensure best possible use of all its resources – including land – to support the recovery and renewal. This means we must be willing to rethink how our tax system operates and to consider how changes to the land and property tax system could promote action such as regenerating town centres, driving active land use and encouraging more diverse ownership of land.

The Scottish Government’s goal of inclusive economic growth has been given added urgency by Covid-19, in particular by the need to mitigate the disproportionate impact of the pandemic on Scotland’s most disadvantaged communities.

A new report, "Land and property taxation in Scotland: Initial scoping of options for reform", that we are publishing today identifies a wide range of ways in which taxes have the potential to help achieve long-term land reform outcomes. These include tackling inequality, expanding the supply of land for housing and reducing the amount of vacant and derelict land, especially in our most disadvantaged communities.

Well-designed tax instruments could enable the Scottish Government to stimulate economic recovery and pivot towards a regionally-focused development model.

Taxes obviously provide an important source of revenue to finance public services and infrastructure. However, while 50 per cent of the UK’s wealth is tied up in land and property, it only forms around 10% of the total tax base. In Scotland, just 12% of all public sector revenue across reserved and devolved taxes are raised through taxes fully or partially levied on land and property.

Some land and property related taxes, including council tax, non-domestic rates and Land and Buildings Transaction Tax (LBTT), are already the responsibility of Scottish Parliament which also has the option of introducing new local taxes designed to fund local authority expenditures.

Other taxes such as corporation tax, inheritance tax, and income tax, which is partially devolved, also have the potential to influence land ownership and use, though these are reserved taxes that require action from the UK Parliament.

It is already clear that there is far greater potential for land and property related taxes to be used to fund crucial fiscal measures to stimulate demand, incentivise behaviour change and reduce inequality.

Any tax changes must incentivise behaviour change to encourage a more productive use of land and disincentivise behaviour relating to land use and ownership that does not deliver wider public benefits.

During the coming year, a new Expert Advisory Group on Tax on Land and Property we’ve established will examine the options for change.

This group will shape pragmatic and ambitious options for Ministers in late 2021 to reform tax on land and property in Scotland to help address the immediate impacts of the pandemic and develop clear principles for longer term changes.

Taxes on land, and transactions involving land, are already widely used around the world to raise revenues, reduce inequality and promote more effective land use and management.

It is critical that Scotland uses its most valuable asset – land – to help address inequality and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.

Lorne MacLeod is a Scottish Land Commissioner, Chartered Accountant and Chair of the Expert Advisory Group on Tax on Land and Property