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yet to the legal owner it is a minus quantity, so long as the surrounding circumstances remain unchanged. But it is obvious that if the value of the site increases, even if it does not become equal to or greater than the fixed charges, the owner benefits by the full amount of the increase, since his property is more valuable, while the fixed charges remain the same. Hence for the purpose of a tax on increment, minus site values are a perfectly legitimate device. For any other form of tax they are impossible.
The system of ascertaining site values by deducting various amounts from the total value does not commend itself to professional valuers, who usually prefer to estimate it directly, on the basis of sales of near-by property, or from a calculation of the profits that might be derived from it if properly developed. As the law is worded there is little difference in the results for the primary valuation, as on 30th April, 1909, save that, in the rare case of a site which would be worth more cleared than as it stands, it must be valued at the lower amount. But when it comes to a later valuation, on an occasion when Increment Duty is payable, according to the law any gain accruing to a dealer in land as a result of his skill at buying and selling is automatically accredited to site value and made subject to the tax. This results from the fact that site value under the act is a residuum; and if the total value is increased, while
site is poorly adapted to the building, so also is the building poorly adapted to the site, and the loss must be attributed to both. After a building is erected its cost has no further influence on its value, which is dependent on the principle of quasi-rent. The only limit to its depreciation is the value of its materials, minus the cost of demolition. Similarly, the minimum value attributable to the site is its value when cleared, minus the cost of clearing in case and to the extent that that cost exceeds the value of the material removed. This minimum can never be less than zero, for if it were the owner would abandon the property. Even if the property were a nuisance to neighboring sites it could not be worth less than zero, for the detriment attaches not to the ownership of the property but to its existence, and affects surrounding site values, but not that of its own site.
the deductible factors remain unchanged, the residuum must be increased. The Lumsden case, decided by the House of Lords, July 20, 1914, showed that even when there was admitted to have been no increase in the value of the site, Increment Duty might nevertheless be payable. The Government promised to remedy this unforeseen defect, by means of a one-clause bill limiting the duty to cases in which the bare site had really increased in value.1 The outbreak of the war temporarily shelved the proposal, but the promise has never been withdrawn, and meanwhile no duty is being assessed in such cases.
The published figures of the results of the valuation are very meagre. In the first place the number of hereditaments included in provisional valuations made in Great Britain up to 31st May, 1914, was only 7,952,111 out of a total of approximately 10,500,000. The area valued by the end of the fiscal year 1913-14 was 35,466,901 acres, which equals only 63% of the total area of Great Britain. The geographical distribution of this land is not indicated, nor its classification as agricultural or urban. Up to June 30, 1914, 273,720 valuations had been served in Scotland, being about two-thirds of the total number of hereditaments. The figures for Ireland are not published, except the number of provisional valuations made, which was stated by Mr. Lloyd George in the House, June 22, 1914, to be 204,000, while there remained 120,000 to be served in cities, towns and urban districts.
1 See H. C. Debates, May 4, 1914, column 27. At first the Government had maintained that this was not a defect at all, and tried to justify the special taxation of profits obtained from selling land" for more than it is worth at the time" on the ground that it was a "special gain incident to the ownership of land" and therefore, apparently, unlike other commercial transactions. Cf. White Paper Instructions, 21 January, 1911, H. C. Paper 238 (1911); and the letter of Mr. Lloyd George and speech of Mr. Finley quoted by Mr. Harold Cox in the Edinburgh Review, July, 1913, p. 248. Such a practice would entirely alter the principle of the increment duty, and have far-reaching consequences in discouraging building and raising rents.
The aggregate "Total Value "1 on March 31, 1914, excluding minerals 2 was £2,953,412,359. This would indicate a total for Great Britain of about £4,000,000,000, if the same average per hereditament should be maintained. As a matter of fact the hereditaments valued have increased year by year in both area and value. The averages are as follows:
There is a striking contrast between the averages for England and Wales and those for Scotland. While the average area in the former is 3.95 acres, and the average value £417, the average area in Scotland is 11.8 acres, but the value only £298. The figures for 1913-14, which exclude mineral valuations, are: England and Wales, 5.1 acres, £485; Scotland, 16.7 acres, £322. The value per acre seems to be five times as great in England as in Scotland. It would be interesting to know how much of this is due to the Scotch system of feu duties.
As regards minerals, up to 31st March, 1914, the area of land included in the provisional valuations was 579,417 acres, and the aggregate total value £5,077,979, of which 469,154 acres and £4,724,491 were in England and Wales, the rest in Scotland. The value per acre is approximately three times as great in the southern kingdom as it is in the northern one.
1 Total Value is roughly market value, disregarding the capital value of perpetual rents.
2 Fixed charges on land are also deducted.
Excluding mineral valuations.
On the whole the valuation department seems to have been fairly successful in attaining accuracy in all cases where there is no room for dispute as to what the law requires to be included in value. Most objections by owners are settled without a hearing before a referee; the total number of appeals against provisional valuations decided by referees up to March 31, 1914, was only 98, in respect of 420 hereditaments. In addition, 544 cases were withdrawn or otherwise adjusted, and 920 appeals remained unsettled on that date. The total number of hereditaments which had been the subject of notices of appeal was only 11/100ths of 1% of the number of hereditaments valued. This proportion will be considerably increased by the recent decisions, especially as during the war the sixty days allowed for appeals is not deemed to run.
It is interesting to note that not all the appeals were, as one would expect, for an increase in assessable site value, in order to reduce as far as possible any future taxable increment. Some owners evidently feared that a direct tax on site values would soon be introduced, and therefore wished to be assessed on a low valuation.
But tho the valuers have been skilled and conscientious, their task has in many cases been too difficult for them. It is comparatively easy to agree on a value for any single item in the vast number of physical and legal factors which go to make up the market value of an estate, if the item to be valued can be defined. But it is a different matter to assign each one of these factors to the site or to improvements in such a way as to conform to any generally accepted canon of taxation.
Most of the difficulty has been in the valuation of agricultural land, which is not surprising, in view both of the confused provisions of the law and the inherent impossibility, for the vast majority of British farms, of
separating any real prairie value from the value added by the expenditure of labor and capital. In cases brought before the courts it has been decided that live hedges are improvements, but dykes and stone boundary walls, and sea walls not connected with buildings, are part of the site;1 that the value of growing grass must be deducted to arrive at full site value, but the value of unexhausted manures and tillages, and the increased value due to the fact that land had been laid down to grass by the tenant, must not be deducted; 2 that in some cases private roads used in connection with buildings are deductible improvements, but other roads, not so used, or not deserving to be considered "structures," are not deductible. Similarly it seems that drains and water supply connected with houses must be considered as non-existent for the purpose of estimating site value, but land drains, culverts, dykes and ditches in the fields are existent; and that wood and wire fences about the homestead must in like manner be distinguished from wood and wire fences elsewhere on a farm.
The separate valuation of the site value or prairie value of agricultural land with any approach to accuracy is nearly impossible, since the cost of improvements even when it can be ascertained, and a suitable allowance made for interest-bears no certain relation to the increase in value resulting from them, nor to the loss that would be occasioned by their removal. Moreover, the smaller the unit of valuation, the less will be the difference in its value occasioned by the presence or absence of buildings and other improvements, for a small farm may often be added to an adjoining estate
1 Executors of Waite v. Commissioners ([1914) 3 K. B. 196).
• Commissioners v. Smyth (110 Times Law Reports, 819).
The British tax attempts to exempt the actual value of capital invested; the German tax exempts capital expenditure, whether profitable or not.