Development land tax (UK)

3 key takeaways

• Development Land Tax (DLT) was a tax on the increase in value of land resulting from obtaining planning permission for development.
• It aimed to capture a portion of the financial gains that landowners received due to public decisions and infrastructure improvements.
• The tax was eventually abolished, but the principles behind it continue to influence discussions on land value taxation.

What is Development Land Tax?

The Development Land Tax (DLT) was introduced in the United Kingdom in 1976 and was intended to capture some of the increased value of land that occurred when planning permission for development was granted. The idea was to tax the “betterment” or unearned increment that landowners gained, which was often a result of public investment in infrastructure or changes in planning policies rather than the actions of the landowners themselves.

Purpose and principles

• Capture Land Value Increase: The primary goal of the DLT was to capture a portion of the financial gains landowners received when their land increased in value due to the granting of planning permission.
• Redistribution of Wealth: By taxing the unearned increment, the government aimed to redistribute wealth and fund public projects and infrastructure improvements.
• Discouragement of Speculation: The tax was also intended to discourage land speculation and ensure that land was developed in line with public needs and planning policies.

How it worked

• Valuation: The value of the land was assessed at the point when planning permission was granted. The difference between the pre-permission value and the post-permission value was considered the “development gain.”
• Tax Rate: A tax was levied on this development gain. Initially, the rate was set at 80%, but it was later reduced.
• Payment: The tax was payable by the landowner when the land was sold or developed. The intention was to ensure that those who benefited from the increase in land value contributed a share of this gain to the public purse.

Abolition and legacy

• Abolition: The Development Land Tax was abolished in 1985. One of the reasons for its abolition was the complexity and administrative burden it created. Additionally, it was argued that the tax discouraged development and led to distortions in the land market.
• Legacy: Although the DLT was abolished, the principles behind it continue to influence discussions on land value taxation. There is ongoing debate about the best way to capture land value increases for public benefit without discouraging development.

Examples and applications

Example:

A piece of agricultural land valued at £100,000 is granted planning permission for residential development, increasing its value to £500,000. The development gain is £400,000. Under the DLT, a significant portion of this gain would have been taxed, ensuring that the landowner shared some of the unearned profit with the public sector.

Applications:

• Policy Design: The principles of the DLT can inform modern policy design, particularly in discussions about how to finance infrastructure projects and capture the value created by public investment.
• Land Value Capture: Governments may consider implementing mechanisms to capture increases in land value resulting from planning decisions, zoning changes, or public infrastructure improvements.

Related topics

For further reading, consider exploring the following topics:

• Land Value Taxation: A tax on the unimproved value of land, intended to capture the economic rent from land ownership.
• Planning Gain: The increase in land value resulting from planning permission, and methods to capture this value for public benefit.
• Infrastructure Funding: Mechanisms to finance public infrastructure projects, including through capturing the increase in land values that these projects generate.
• Property Tax: A tax on property ownership, typically based on the value of the property and land.

Understanding the Development Land Tax and its legacy is crucial for policymakers and economists interested in equitable taxation, land use planning, and financing public infrastructure projects.