HM Insights

Energy Bulletin - Scottish Land Commission review of land tax policy report

A report on initial scoping of options for reform of land tax policy has been published by the Scottish Land Commission. The report does not make any recommendations on the best route for Scotland, as it says this is a matter of policy, but does assess the current framework of land tax and set out potential options for reform.

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The report notes that implementing taxes on land is often challenging because valuation is subjective and often opaque, and taxes may be politically unpopular, which is a common feature of taxes not attached to income flows.

The report reviews taxes under four policy headings:

  1. More diverse land ownership: providing further tax incentives on community ownership or purchase of land could increase the number of communities exercising control over land. Alternatively, tax incentives that enable unbroken transfer of land ownership across generations could be reduced to diversify land ownership.
  2. Reducing the number of vacant and derelict sites: higher tax rates on vacant sites could encourage their use. Other governments have imposed a split-rate system, which levies higher rates on land relative to development. However, successful implementation of these policies requires consideration of the unique characteristics of local communities, including patterns of land use as well as business models of landowners.
  3. Expanding agricultural tenancies and joint-venture farming: There is mixed evidence on the ability of taxes to influence specific agricultural practices such as succession planning or sustainable environmental practices. However, recent reforms to income tax and succession planning in Ireland hold promise in their potential transferability to Scotland.
  4. Expanding the supply of land for new housing: The wider evidence base suggests that the supply of land for new housing is likely to be relatively unresponsive to a tax on the value of land. Alternatively, betterment levies, tax increment financing (TIF) or development impact fees can help cover the costs of new infrastructure development and increase the amount of land available for development. The success of these policies is closely tied to their ability to serve as a source of local government revenues, low administrative burdens and transparent design.

Other possibilities for reform listed in the report are: Business Rate or Council Tax reductions for redevelopment activities; increase taxes on unproductive land; create additional enterprise areas around derelict sites; remove or reduce Agricultural Property Relief for Inheritance Tax; add agricultural land to the valuation roll for business rates; reform council tax bands to make the structure more progressive and implement a land value tax on concentrated private estates.
Further research is recommended before any firm conclusions can be drawn on the type of land tax model that would best serve Scotland.

Access the report

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