Finance Guide

Property Tax is a tax levied on the value of a property. In many developed countries, property taxes are levied by the local government and used to pay for the local government’s operating expenses while other major taxes, such as income tax, are levied by the central government.

This form of taxation usually requires a system of inspection whereby local government officials grade the property according to its presumed value, so that the property owner can then be charged at the appropriate rate.

Property taxes have been politically controversial for the simple reason that not everyone owns property. Since local governments are elected democratically and since the great bulk of local government expenditures are often financed by property taxes, it is therefore theoretically possible for a non-property owning majority to elect a government which would engage in lavish spending projects financed only by a minority. There is a potential for exploitation here which has been recognized by politicians of some countries, who have moved towards a local government household tax rather than a property tax per se.

Property taxes can also create tension when an area experiences dramatic rises in property values generally. In that case, households which may not be particularly wealthy, and who may have acquired a house when it was inexpensive, may find themselves being charged a very high rate for their home which is now worth much more. In extreme cases, households can find themselves driven out of their own home because of their inability to afford the higher property taxes.

A wealth tax is a tax which is levied on the existing stock of assets an individual has. This is relatively unusual as most taxes are levied on the basis of income streams, such as income tax or corporation tax. Wealth taxes are fairly rare. They are by no means as widespread as other forms of taxation such as sales taxes or income taxes. Most developed countries do not have wealth taxes, although they may have a variant in the form of capitals gains taxes, which apply taxes to increases in the value of assets a person has rather than their static values.

In countries which do have wealth taxes, they tend not to raise a very high proportion of government revenue, leading many observers to conclude that they have been imposed for political rather than economic reasons, and are no more than expressions of egalitarian or even class warfare sentiment.

In countries which operate a wealth tax, individuals must report their own stock of assets and liabilities to the government, paying tax on the difference between the two, more commonly known as their net worth. Usually, there is a base threshold value for net worth, below which the wealth tax need not be paid, ensuring that it only affects people who are fairly well-off.