At present, most of us could not afford to pay 100 per cent of the market rent of our land because we already pay other taxes, and because the economy is depressed by factors including this burden of taxation. So we choose for ourselves the percentage that we contribute. This can be any amount, from £1 per month to the full market rent of the land, net of existing property tax.
Chartered surveyors and valuers are best placed to estimate the market rent of land. But for the purposes of making voluntary ground rent contributions, we can make a good enough approximation ourselves.
First, we estimate the market rent of our whole property (land plus buildings and other improvements) by comparison with the rents that are paid for similar properties in the open market. Or we use the very approximate rule of thumb that the annual market rent is about five per cent of the sale price.
From this we estimate the full market rent of the land alone:
- For a home, very approximately and across the country as a whole, about half the value is in the land and half in the building;
- Owners of agricultural land generally know how much tenants pay for its equivalent;
- For corporate holdings, the value can be estimated by comparison with the amounts others are willing to pay for a similar undeveloped site;
- If there is a mortgage for 30 per cent of the value of the property, market rent is reduced by 30 per cent;
- If we already pay a property-based tax (Council Tax or National Non-Domestic [Business] Rates), we deduct this amount from our dues. From our perspective this is the wrong sort of property tax to be levied, as it falls on buildings as well as land, but we have paid it.
Buildings and other improvements to the land are outside this arrangement.
Tenants already pay rent so there is no need to pay again. Some renters have pledged that they will make voluntary ground rent contributions if they ever do own land.
Those who have a mortgage for, say, 30 per cent of the current value of our property only own 70 per cent of the property. So the proportion of the full market rent as a potential contribution would be just 70 per cent of the market rent of the land.
Voluntary ground rent contributions can be made for all land, whether it is used for housing, commerce, industry, agriculture or forestry.
Each of us chooses the proportion of ground rent that we will pay.
Examples from South Hams, Devon
|House||Agricultural land||Commercial and industrial holdings|
|Description||Sale price £250,000||Half share of 9.5 acres of Grade IV land @£70 per acre per year||Shop currently rented to a small business|
|Annual market rent of property (land + buildings)||£12,500||£333||£6,000|
|Proportion attributable to land||50 per cent||100 per cent||50 per cent|
|Annual market rent of land (ground rent)||£6,250||£333||£3,000|
|Proportion unmortgaged||70 per cent||100 per cent||100 per cent|
|Total (gross) contribution||£4,375||£333||£3,000|
|Property tax paid (Council Tax or Business Rates)||(Band D)
|(46.7 per cent of £6,000)
|Net contribution after property tax||£2,455||£333||£200|
|Chosen percentage to pay||10 per cent||100 per cent||50 per cent|
|Annual amount to pay||£245||£333||£100|
|Monthly amount to pay||£20 per month||£28 per month||£8 per month|