The natural mechanism for raising a mansion tax on high value UK property is not Council tax. Councils lack a home by home market valuation database and the means to build one. HMRC can raise a tax far more effectively and then might distribute it to councils.
Current Conservative policy will block a mansion tax based upon the rich contributing more but might accept a new tax targeted solely at non-owner occupied homes. Not only do these homes avoid the equivalent level of property tax on large homes that our continental neighbours are charged they also escape inheritance tax and capital taxes until sold. In Holland the owner of a mansion pays a 30% tax rate on the deemed 4% yield of his home at its current value-i.e.1.2%. In addition, owners and renters each pay a local tax of 0.1 to 0.3% making a total around 1.7%. Our unique failure to tax these investment assets means that in London 60% of new housing last year was bought by foreign investors.
To ensure a reasonable level of tax receipts we might revert to the original £1,000,000 entry point for this Lib-Dem initiative. The bands for a mansion tax with owner occupier exemption might be:
0% from £850,000 to £999,000 (ownership need not be declared below £849,999)
1% from £1,000,000 to £1,999,000 (unless subject to private residence relief)
1.5% above £2,000,000 (unless subject to private residence relief, each embassy and ambassadorial residence would also be exempt)
The tax would be an Annual Tax payable by property owners based upon historic cost and regional price indices. Collection from UK taxpayers would be via an extension of the Capital Gains Tax section of the self assessment return. The purpose of the 0% rate band is to build up and map those geographic locations where taxable properties typically lie. Armed with this data by street, inspectors can chase up gaps in the declaration of properties over the £1,000,000 level for enforcement purposes.
Action needed urgently
Simon Hughes recently wrote in the Guardian that:
There has been a long term decline in the affordability of housing….The average deposit needed on a home has risen tenfold since 1990, while incomes have risen only 3 times.
Speculation is focussed at the top end of London boroughs and in new properties but capping the value of these through starting to tax the benefits of absentee ownership for investment will trickle down.
New policies are often misunderstood on the doorstep. Targeting landlords and offshore owners exclusively means that we can say: ” Owner occupiers subject to UK tax are exempt- everyone else pays”.
As a universal version of this mansion tax proposal has been put to cabinet and rejected we might have to wait many years even for this “fairer” tax to be accepted. Alternatively, we could be more generous in the long term so as to get the proposal accepted immediately. The annual mansion tax payments could be structured as an advance on the Capital gains tax ultimately due on subsequent re-sale. No allowance would be made for interest on this prepayment of capital gains tax to HMSO.
* Ben Tyler is a LibDem member in Putney and was a founder member of the SDP and sometime member of the Labour Finance and Taxation Association