Does land value tax create an incentive to merge land ownerships? LVT is "a tax on the unimproved value of land", and "in theory, it does not distort decision making". But if I own land then improvements such as buildings on my neighbour's land can easily increase the value of mine. 

It seems like the total LVT payable would therefore be reduced if I sold my land to my neighbour and they paid tax on the entire estate at the value it would have had not been improved. This seems like a major distortion of decision making.
Some people strongly disagree that LVT is not distortionary: 


  George was right that other taxes may have stronger disincentives, but
  some economists now recognize that the single land tax is not
  innocent, either. Site values are created, not intrinsic. Why else
  would land in Tokyo be worth so much more than land in Mississippi? A
  tax on the value of a site is really a tax on productive potential,
  which is a result of improvements to land in the area. Henry George’s
  proposed tax on one piece of land is, in effect, based on the
  improvements made to the neighboring land.
  
  And what if you are your “neighbor”? What if you buy a large expanse
  of land and raise the value of one portion of it by improving the
  surrounding land. Then you are taxed based on your improvements. This
  is not far-fetched. It is precisely what the Disney Corporation did in
  Florida. Disney bought up large amounts of land around the area where
  it planned to build Disney World, and then made this surrounding land
  more valuable by building Disney World. Had George’s single tax on
  land been in existence, Disney might never have made the investment.
  So even a tax on unimproved land can reduce incentives.
  ... Zachary Gochenour and Bryan Caplan have pointed out that while the
  surface value of land is more apparent, especially for farming
  purposes, many lands have hidden natural resources, such as gold,
  water, and oil. These resources require investment on the part of
  owners to discover and produce. “Information about the land can be
  considered an improvement in its own right.” To tax the entire, or
  even a large, value of the mineral resources would create enormous
  disincentives for exploration and production


The Concise Encyclopedia of Economics: Henry George (1839-1897 ) 

To answer this more definitively we'd need to take a stand on how we think the tax assessor would measure unimproved value. We could then ask if combined plots would distort this measure. I read the quote above as saying that the assessor looks at the sale prices of undeveloped lots in the area. But the value of these lots is necessarily higher due to the improvements of others (or even your own). Combining plots, to the extent that it makes big, valuable projects possible, distorts this measure but in the wrong direction. Some other method that tried to strip out the indirect value of your own improvements on the unimproved value of your own land but left in the increase in value of the improvements of others would bias towards combining properties.