Alistair Darling should levy a £5bn "empty property tax" on up to a million homes left vacant by absentee landlords, to help meet the costs of the financial crisis, trades unions will argue tomorrow.

The TUC wants the chancellor to charge five times the usual council tax – an average of £5,875 – on homes standing empty to persuade owners to sell or let them. It would like to see overseas landlords charged UK income tax on rental payments unless they can prove they are paying it in their home country.

Brendan Barber, TUC general secretary, will use a speech to an economic conference in London to argue that the number of homes standing empty, thought to be a million on some estimates, is a national scandal.

"Across the UK, the queue for social housing is growing. In London especially, a chronic housing shortage is pushing prices well above their pre-recession levels – and out of reach of many potential home owners.

"How can it be fair then that a million houses lie empty across the UK? These properties – often bought for purely speculative purposes or as a vehicle for tax avoidance by overseas landlords – contribute to our housing crisis and fiscal deficit."

In its submission to the Treasury before Darling’s pre-budget report on 9 December, the TUC says the chancellor should use tax measures, as well as public spending cuts, to deal with the government’s deficit ‚Äî and ensure that the rich bear their fair share of the burden.

So let’s get the caveats out of the way first of all:

a) Of course short periods of inoccupancy would not count – indeed up to a year should not be questioned

b) But second properties should count as vacant and be subject to an additional charge – even if at a lower rate than that suggested for wholly vacant property – because you can’t live in two properties at once

c) Holiday lets should not count as vacant – but only if really let. They do play a role in the tourist economy

d) There should – as with some rules in capital gains tax – be room for appeal in special circumstances

These noted, the proposal makes complete sense. We have a shortage of housing. That housing is needed now. The UK has a stock of available housing that is being withheld from the market. By pricing it into the market valuable resources are saved, need is met and planning stress is reduced. The increased supply of housing will also reduce house and letting prices: another social gain.

As such the potential gain for society from changes in behaviour promoted by this tax is enormous. And if the tax yield falls as a result – so be it. That is part of the intention.

And dealing with the offshore landlord issue – evidence is available that many occupied and rented properties are now being registered through offshore, tax haven companies registered in locations such as the British Virgin Islands, Jersey, Guernsey and Switzerland. For all practical purposes it is almost impossible to determine who really owns these companies. The reality is that they could be owned by UK resident people who are hiding that fact by registering these properties in the names of tax havens companies.

Anecdotal evidence from HM Revenue & Customs also suggests that although there is a requirement that a non-resident landlord company be registered with HM Revenue & Customs this scheme has become a virtual rubber stamping exercise: enquiry is not made as to the beneficial ownership of the companies that apply to receive rent from the UK without taxes being deducted at source and a list of properties the landlord owns is not demanded.

That is why the TUC suggests that unless an overseas landlord who is an individual is willing to prove that they have paid tax in their place of residence on the rent they will receive from a property in the UK then tax at basic rate should be deducted from all payments of rent made to them either by their tenant or their letting agent. Procedures to do this are already in existence, but it is at present possible to apply for gross payment of the rent without ever proving that tax is paid elsewhere on the income arising. This should now change and tax should be paid in the UK in the first instance until the income can be proven to have also been declared elsewhere (an exception being made for EU residents).

And, in the case of the non-resident landlord being a company there should be a different requirement. In every such case tax should be withheld at source on the grounds that the property in the UK represents a taxable branch of the company in the UK. That tax withheld should be required to be paid to HM Revenue & Customs at least quarterly, but with the right to make application for repayment at the year-end if it can be shown that the tax due on a properly computed profit was less, but then only if the full beneficial ownership is reported to HM Revenue & Customs with evidence of the standard required by anti-money laundering regulations being submitted as evidence e.g. copy passports as proof of identity and utility bills as proof of place of residence. This would curtail the massive risk of tax evasion in this market through use of impenetrable offshore companies.

The final change would apply in the case of offshore companies owning property in the UK that had not proven the identities of their owners to HM Revenue & Customs: in such cases capital gains tax should be assessed on sale by requiring that 20% of all sale proceeds be paid as tax unless full beneficial ownership of the offshore owners of the company are provided and tax computations submitted with tax still then being due on the resulting profit.

This policy has four critical objectives:

1. To increase available housing stock

2. To bring down its price

3. To tackle tax abuse

4. To target offshore abuse

All are key objectives for any government. This is why this tax makes sense. And it will also raise significant revenue from a source that largely avoids and evades it now: that is the added bonus that should sell it to any Chancellor.

It would be nice if occasionally you responded to the points as they are put, rather than making wild assumptions to suit your own agenda.

“a) I presume you know 80% of local authority spending is paid for centrally

b) I presume you know most goes on social services of various sorts

From which I conclude:

c) You want to cut those services”

You might want to conclude that, but there was absolutely nothing in my comment which would enable you to draw that conclusion. In fact, I think it’s quite clear from my third point that I was saying anything but: “Reduce the central grant to local authorities, so that they have to collect more of their revenue from Council Tax.”

The use of the words “collect more” should have been a big clue for you. I was suggesting that less revenue should come from central government, but Council Tax should be increased to compensate. No suggestion there of any cut in services, except for those who want to falsely insert that suggestion to suit their own agenda.

“And in the process you deliberately ignore the offshore problem

Now why is that?”

Because my approach deals with the offshore issue without the need for a big song and dance. If the owner has to pay the Council Tax, it makes no difference whether or not they are offshore and collecting more public revenue through Council Tax means the offshore landlord has less scope for avoidance.

What about a tax on all unused land, especially that with planning consent? We’re supposed to have a shortage of housing yet developers hold huge land banks. A local builder told one of his employees that he has land to keep him in business for 50 years. If a suitably high tax was applied (according to value) they would soon get on with building or else sell to those who do. This could help to kick-start the economy.

I do agree with Paul that property taxes should be levied on owners, not occupiers. This is an anomaly which, I believe, only applies in UK. I also agree that the TUC proposal would prove difficult to implement. There is a far more effective and simple tax than this which would curb the waste of valuable sites. Annual LVT could fund total local authority expenditure – which would mean that as well as replacing Council Tax, National Non-Domestic Rates and Stamp Duty, it could help to raise the lower income tax threshold.

I like your ideas Richard, but I think a similar principle should be extended to commercial properties. It strikes me as crazy that retail units are left empty and areas desolate because landlords won’t be realistic and adjust their rents to levels at which a business can occupy it and thrive.

Most overseas landlords will finance their acquisitions with enough debt to ensure that there is little or no profit in the Sch.A business, so this is unlikely to have much effect without a limitation on gearing. On the other hand, I have never understood why the UK has not brought gains on the sale of all UK land/immovable property within the UK tax net, which is the norm in most other countries as far as I am aware.

Alex, the answer to your question is because the UK Government want to encourage non residents to own property in the UK, so they exempt all non residents from CGT on UK assets, but not their own residents.

The non resident landlords scheme already forces withholding tax on any rent paid to non resident property owners. Also, my understanding is that the rent is taxable in the UK regardless of whether it’s paid gross or not – payment gross is on the condition that a UK tax return is completed. And tax is authomatically withheld if the foreign landowner is a company.

Also, the HMRC have ran a very effective “offshore arrangements” project for years out of their Merseyside offices that tracks down UK residents who are hiding land ownership through overseas companies. The have a link to the Land Registry that gives them details of every UK land transaction that involves a non resident seller or purchaser.

The whole point of the TUC recommendation is to a) enforce withholding – which is exceptionally rare and b) collect tax from those who owe it here, which is as rare according to my sources and c) to collect CGT which is not due – which makes monitoring sales utterly pointless right now

And tax is not automatically withheld from a company – which is why the change is needed

As for tracing UK residents in this way – you come from the Isle of man which helps hide these trades. I presume you know how farcical your comment is in that case

Richard: “As Nick has noted – if you failed to hit social services you massively hit the poor – council tax is just about the most regressive one we have”

No it isn’t. It isn’t especially well designed (the upper limit on banding is a major issue), but there are far more regressive taxes out there. The cost of Council Tax ultimately falls on the owner and the poorest tend to rent, which is why land and property taxes are preferred by people who really want to avoid hitting the worst off.

You seem to have an agenda which involves working to ensure that the tax system continues to enable some to gain handsomely from public funding while being able to avoid making a just tax contribution in return for what they gain.

I agree with Carol that LVT is the ideal solution, but as a first step, I think the steps I proposed would make a big improvement.

nick james: “And Paul, removing all exemptions and discounts for single occupant properties would hurt low income, probably older, homeowners. Why should they be made to pay for the sins of others?”

I look at it from the other angle – why should the tax system be giving exemptions to single occupants? The really poor tend to rent, not own, so giving tax breaks to benefit homeowners is generally not well directed.

As far as I’m concerned, the purpose of having a property tax is to reflect the externalities that people gain or suffer from as a result of state granted land titles and planning restrictions.

If large numbers of people live on their own in large houses, it reduces the available housing stock, increasing housing costs for those who may be poorer and be forced into cramped housing conditions. The single person exemption effectively penalises people for living at high density, which to me seems absurd.

Carol Wilcox :
What about a tax on all unused land, especially that with planning consent? We’re supposed to have a shortage of housing yet developers hold huge land banks. A local builder told one of his employees that he has land to keep him in business for 50 years. If a suitably high tax was applied (according to value) they would soon get on with building or else sell to those who do. This could help to kick-start the economy.
I do agree with Paul that property taxes should be levied on owners, not occupiers. This is an anomaly which, I believe, only applies in UK. I also agree that the TUC proposal would prove difficult to implement. There is a far more effective and simple tax than this which would curb the waste of valuable sites. Annual LVT could fund total local authority expenditure – which would mean that as well as replacing Council Tax, National Non-Domestic Rates and Stamp Duty, it could help to raise the lower income tax threshold.

Freeborn Man :
Alex, the answer to your question is because the UK Government want to encourage non residents to own property in the UK, so they exempt all non residents from CGT on UK assets, but not their own residents.

Except that is not the answer to the question. To put it another way I don’t understand why the UK government wants to encourage the ownership of UK property by non-residents to such an extent that it exempts capital gains from UK tax. The US does not discourage foreign ownership of US property but gains from the alienation of US property are treated as income and taxed in the US.

Alex: “I have never understood why the UK has not brought gains on the sale of all UK land/immovable property within the UK tax net”.

CGT on landed property is economically inefficient. It hobbles a market which is dysfunctional for many reasons. Why on earth do you want to make it difficult for families and businesses to move to a more suitable location? The collection of all Ricardian rent for public benefit meets all the criteria for a good tax with absolutely no distortionary effects.

Carol Wilcox :
Alex: “I have never understood why the UK has not brought gains on the sale of all UK land/immovable property within the UK tax net”.
CGT on landed property is economically inefficient. It hobbles a market which is dysfunctional for many reasons. Why on earth do you want to make it difficult for families and businesses to move to a more suitable location? The collection of all Ricardian rent for public benefit meets all the criteria for a good tax with absolutely no distortionary effects.

But disposals of landed property are within the CGT charge for UK residents, subject to an exemption for a primary residence. Secondary, teritiary etc houses or other properties are within CGT.

The position for non-residents is entirely different and they do not pay CGT. The UK taxes overseas landlords on their rental income, subject to a whole lot of deductions including primarily interest, which usually means that any net liability to tax is negligible. One might speculate that an offshore bank is willing to lend against 100% of the value of the property because the owner has deposited the same amount or more in some sunny jurisdiction, but however it is done, the rental income is offset by interest.

But the benefit to the landlord arises when the property is sold for a gain which the UK does not tax. If the landlord is overseas and thus nor resident in the UK there is no logical reason why they should be taxed as though on the same basis that a UK tax payer is taxed on the disposal of their primary residence.

To try to tackle offshore company ownership abuse, one could do worse than look to France.

Their annual 3% tax on properties owned by companies, which can be avoided by disclosing beneficial ownership, is highly effective. One should also note that the exemption mentioned is not available if the ownership structure contains one or more entities in a jurisdiction with which France does not have a tax treaty including an information exchange clause.

Alex, successive UK Governments have encouraged investment into UK property by foreign residents – hence the very generous tax treatment in comparison to most other states in the world. I don’t know why they do this, other than to guess that it is because the UK economy is overly reliant on house prices. The UK economy ceased to be based on manufacturing and useful production decades ago, so rising property prices create the feel good factor that gets politicians (both left and right) votes. I don’t think any political party in the UK would be brave enough to introduce laws that caused a reduction in property prices.

Richard, just because I am from the IOM doesn’t mean I don’t have a valid opinion. My understanding of why a lot of UK land is held in the name of overseas companies is not because of “secrecy” or evasion of tax. It is held this way because the UK tax rules positively encourage this form of ownership structure – (i) so that non resident and domiciled individuals can avoid inheritance tax, and (ii) so that resident individuals with a foreign domicile can avoid both UK inheritance tax and CGT. Both are perfectly legal, transparent and done with the blessing of the UK Government. If the Government has a problem with this, then why did they not change the law when they introduced the new rules for foreign domiciled people in recent years?

Freeborn Man :
Alex, successive UK Governments have encouraged investment into UK property by foreign residents – hence the very generous tax treatment in comparison to most other states in the world. I don’t know why they do this, other than to guess that it is because the UK economy is overly reliant on house prices. The UK economy ceased to be based on manufacturing and useful production decades ago, so rising property prices create the feel good factor that gets politicians (both left and right) votes. I don’t think any political party in the UK would be brave enough to introduce laws that caused a reduction in property prices.

Again, I know all that but I don’t see why they do it – very few other countries do the same, and those that do almost do it as an oversight. UK politicians are quite happy to tax the profits of foreign owned companies who employ British workers, so I don’t think it is done to encourage inbound investment.