How Crossrail 2 property tax may work

A bold suggestion to tax property owners near Crossrail 2 stations to pay for the project faces a number of practical challenges before it could be implemented, say experts.

Canary Wharf station: Homeowners within a 1km ‘zone of influence’ could face a transport property charge
Canary Wharf station: Homeowners within a 1km ‘zone of influence’ could face a transport property charge

A report published by mayoral adviser Transport for London (TfL) this week struck something of a rueful tone when it looked at the impact of the first Crossrail project. "There is now evidence of significant gains in property values around the outer London stations of the Elizabeth Line … with only five per cent being recovered."

This was the motivation behind a proposal floated by TfL development consultant William Jackson at a conference last week. Jackson proposed a new tax, the "transport property charge", to be paid by residential and commercial property owners within a 1km ‘zone of influence’ around stations on the new Crossrail 2 rail line. "Somebody’s got to pay for this and the people in those zones are going to make an increase in value on their house," said Jackson. "If you benefit from it somehow you should pay for it."

The idea of the charge was floated by consultancies KPMG and Savills in a report on land value capture published by TfL in February last year. It was one of several options that also included charges applied through the stamp duty regime and zonal retention of growth in business rates. TfL is clear that no decisions have been made on any of these options. "Any new land value capture proposal would need to be carefully considered and new powers granted," said a spokeswoman.

Those considerations will include a wide range of variables with the potential for significant unintended consequences, says Roy Pinnock, partner at law firm Dentons. Questions it raises, he said, include when the charge would be payable, how it would be reviewed, how it could affect the liquidity of the housing market and what the transitional arrangements might be. "It’s eminently doable, potentially sensible, but beset with some real practical challenges," said Pinnock.

Planning lawyer Jonathan Bower, partner at Womble Bond Dickinson and a member of the Compulsory Purchase Association, said the charge has much wider potential applications. "It wouldn’t be something unique to Crossrail 2. It could be used for other infrastructure," he said. However, "new legislation would be required to introduce it and parliamentary time is somewhat of a challenge because of Brexit".

Rory Brooke, head of economics at Savills, said land value uplift is already captured by other taxes, even if that uplift isn’t then ring-fenced for infrastructure investment. "Quite a lot of government tax already does pick up the uplift but isn’t explicitly recognised," he said. For example, "if property values are increasing then stamp duty receipts will increase".

There are, of course, existing options for land value capture – the Community Infrastructure Levy (CIL) and section 106 planning gain agreements agreements. Pinnock says something akin to a zonal CIL may serve the required purpose – and wouldn’t need legislation before it could be introduced. While the transport property charge has some obvious attractions, Pinnock asks: "Is there actually an easier way to do it?"

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