A tax on high-value property is a long-standing Liberal Democrat ambition, yet one which remains controversial. If and when it is adopted by government, it must be directed locally if it is to address key concerns.
The chief benefit of a mansion tax is to discourage purely speculative housing purchases. Falling demand for luxury property from prospective owners unwilling to pay tax on homes they are not inhabiting would encourage a greater focus from developers on homes affordable to the majority.
Of particular concern is the 70% of newly built homes in central London bought by non-UK residents in 2013. Existing housing stock in an under-supplied market must be used more efficiently. Combined with other new taxes on such property and a strengthening pound, the effect of a targeted mansion tax could be especially strong on ‘non-dom’ owners.
This complements the inherent advantage of a mansion tax. By taxing value arising from features inherent to the property such as its location or design rather than endogenous decision-making by economic agents, it avoids the negative incentive effects associated with income tax.
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