Site Value Tax: What is it? How does it work?

I volunteer with a group called Smart Taxes who are a sustainable taxation think tank. This has post is taken from their site (original in link above), and it is well worth reading if you want to hear about the reasoning behind using site value or land value taxation as opposed to ‘property taxation’.

Site Value Tax is a taxation reform included in the Irish government’s current Program for Government. It levies an annual charge on the value of all developed and undeveloped zoned land including the site under every building in residential use.  It does not include un-zoned land i.e. agricultural land, forestry and peat-lands.  It does not include developed commercial property currently subject to local rates but it is expected that SVT will replace commercial rates in due course.  It does however, include land zoned for commercial uses not currently subject to rates.  Research by Smart Taxes and other groups has shown that SVT has clear benefits over other kinds of property taxes from a number of perspectives; macro and micro-economic, environmental and social. It will assist local and central government to plan and develop effectively while providing a sustainable income source. See below for key research documents from Smart Taxes. A book compiling these and additional research papers is forthcoming.

What is the Difference to a Property Tax?

It differs from a property tax in that the property tax is imposed on the value of a property (i.e. the building), while Site Value Tax is based only on the value of the land. Land value derives from location and service access, meaning that, for instance, a site in a central location with good transport will pay more than a relatively isolated site. It would also apply to undeveloped zoned land, empty building sites and derelict sites.

Land Value Taxation and other Measures for Raising Public Investment Revenue: A Comparative Study

What are the Economic Benefits?
Unlike other taxes, Site Value Tax does not impose a cost on economically beneficial activity, as VAT does on consumption or PRSI does on employment. Instead, it charges for the benefit that a landowner receives from the location of their land. This benefit is largely due to access to services and local social and economic capital created by the community (third party private  and public investment) not due to effort by the individual site owner.  Site Value Tax enables this benefit to be returned to the community rather than to the undeserving site owner so it can be used for further productive community investment.  Effort and investment by the site or building owner to  improve and add value to her property is not taxed however, in contrast to commercial rates or other property taxes.  Further, by taxing undeveloped land when zoned for a particular use, Site Value Tax discourages land hoarding and speculation.  SVT will replace or part replace onerous transaction taxes which prevent investment such as  Stamp Duties and other non-transparent and/or variable levies such as Development Levies and Part V type obligations thus creating a clearer market in development land and regular receipts for local authorities.

For more information on the economic benefits, see

Macroeconomic Case for a Land Value Tax Reform in Ireland

What are the Environmental Benefits?
Land is a finite resource. By imposing a charge on the ownership of land, based on its maximum permitted economic use, Site Value Tax discourages over-zoning of land and creates incentives for owners to use land as effectively as possible. This will ensure that land is used more efficiently in future and mitigate urban sprawl.

What are the Social Benefits?
Site Value Tax will encourage economic activity and will mitigate the under-use and dereliction of properties. It will also provide a revenue stream for local government investment in public services. As proposed, the tax will include temporary exemptions for home-owners who purchased their land at the height of the boom, while senior citizens will be able to defer payments until their land changes hands. The tax also helps infrastructure investment by allowing the government to capture the rise in land values caused by infrastructure creation. This prevents public expenditure serving to enrich private landowners at the expense of taxpayers.

What Needs to be Done to Implement this Tax?

Smart Taxes has prepared a comprehensive report on the implementation of Site Value Tax. This report has been submitted, and includes a Roadmap, outlining the key steps to be taken. The steps are clear and straightforward. What is needed is political will.

Implementation of Site Value Tax in Ireland and

Site Value Tax – Budget 2011 Submission

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