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
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10 Comments
“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”
I don’t want any part of your ‘fairer’ universal property tax that might in time include my three bed semi, but I can be persuaded on the merits of a tax on non-owner occupied homes provided it meets Adam Smith criteria of a good tax.
Ben,
I’m afraid you very much miss the point whilst trying to talk about ‘fair’ taxation. Even if we put aside the obvious argument that ‘the rich’ (as a group; of course there are some very crafty tax avoiding individuals) pay more than a ‘fair’ share by anyone’s reasonable definition, your tax is still unfair.
Houses are bought with already taxed money. HMRC has no right to any of that until it a capital gain has been made and only then if the property is bought not as primary residence but as an investment. You point out that HMRC cannot touch it until it is sold and a gain realised. Yes. That is the point. Why should someone have to pay essentially a yearly capital gains tax based upon an arbitrarily decided valuation for their house (the system for which will almost certainly exaggerate house prices in good years and fail to keep up with any market declines in bad years rather like fuel forecourt prices)? When they sell it, HMRC gets their slice of profit, but only then. Do you plan to deduct their yearly CGT contributions from the final profit when sold? If not, how is this anything but double taxation?
Your tax is an unfortunate example of typical Lib Dem anti-wealth propaganda. It would raise very little, probably depress the housing market and certainly be anti-aspirational to all and sundry.
I don’t live in a mansion, but I’d like to think if and when I’ve earned enough money to buy one I am not penalised for my desire to invest my money in Britain and to secure the financial future of my children. There is little coming out of the Lib Dems to suggest either of these things are desirable in Britain. The problem is not the 5%. It’s not even the 1%. Try to work out policies that are fair and will actually help rather than ones you think might be popular.
“There has been a long term decline in the affordability of housing”
The causes of which are well known:
– shortage of land in areas people want to live
– Increasing population
– Increasing costs of land
– Increasing costs of construction
– Increasing costs of borrowing money to do the above
– Changing attitudes to housing and ownership
– High levels of foreign ownership in specific desirable areas
The impact of the mansion tax on any of the above will be minimal. The mansion tax more aligned to introducing a new council tax band.
“Councils lack a home by home market valuation database and the means to build one. ”
Councils, (and HMRC) may currently not have such a database, however the building of such a database on top of the existing council tax and land registry databases isn’t that difficult.
“HMRC can raise a tax far more effectively and then might distribute it to councils.”
I note your use of the word ‘might’ , which would indicate that there is a potential turf war between Councils and HMRC/Treasury as to who gets the Mansion tax receipts…
Roland,
Your list of causes of the “long term decline in the affordability of housing” is a very mixed bag, some of which is true and some of which are mistaken:
– shortage of land in areas people want to live – There is plenty of land in every region of the UK. The problem is that would-be developers are not allowed to develop it.
– Increasing population – This should make no difference if we build more houses. The problem is that we don’t build enough new houses.
– Increasing costs of land – This is a function of the restriction on available land owing to land-use planning laws.
– Increasing costs of construction – This is a minimal difference. The cost of housing is primarliy the cost of land.
– Increasing costs of borrowing money to do the above – Borrowing costs are very low by historic standards.
– Changing attitudes to housing and ownership – This should not matter if we build new properties to meet demand.
– High levels of foreign ownership in specific desirable areas – This is a tiny fraction of home ownership and is a red herring.
The impact of the mansion tax on any of the above will be minimal – This is utterly and completely true.
Council tax should be reformed so all houses are taxed at the same rate relative to their value. Current council tax is regressive. Someone in a £100,000 house will pay at a rate of over 1% a year. Someone in a £1,000,000 mansion will pay at a rate of less than 0.5% a year. This provides an incentive to push money into already overpriced housing and away from cheap housing. It’s utter economic and social madness.
Tom P,
I think we are in broad agreement about what has caused the long term decline in the affordability of housing, in terms of the causes that have pushed up the price of housing, either nationally or within specific markets (eg. central London which has a significant level of foreign ownership). I do not disagree with you that some of the causes can be rectified – although whether we (the British taxpayer and residents) would actually want to implement the remedies you give is another matter.
Obviously, the reason why incomes have not increase so much are more difficult to pin down, although one of the reported side effects of the unsustainable levels of immigration encouraged by New Labour was to increase competition in the 25~40 age group and so cause a downward effect on wages and reduced job (and promotion) opportunities for young adults.
However, I would be interested to understand why you think that levying a Mansion tax will have any real impact on the affordability of housing in any given area. I’m ignoring the potential use of the revenues generated to make housing more affordable, given that the primary motivation for the MT is “we’re all in this together” and hence the proper use of such revenues would be to help pay off government debt, although we can be sure that politicians will do as they always do and spend the revenues on some pet project…
In reality, you can only tax income, not wealth. You could force people to sell the assets they have bought in order to tax wealth, but this is not liberal politics, in fact it’s very illiberal, and could have widespread repercussions in the housing and other asset markets. Mansion tax proposals rely on the idea that the value of someone’s house is a surrogate measure of their income. This assumption is untrue and unnecessary. It is always income in fact which is being taxed, so drop the mansion tax proposal, scrap Council tax, and tax income. It’s the only ultimately fair tax. But to remain fair it must leave the income earner with a fair proportion of the income they have earned. We could of course tax savings, the only other source of cash to pay a wealth tax. But we can easily do this by a combination of low interest rates and a little inflation. This might be an incentive to spend, which we drastically need at the moment. In fact the need for demand in the economy argues against any tax increase in the current climate. Any Lib Dems who have avoided the mansion tax should do their duty and spend their savings. The only way to tax assets is at sale or at the death of the owner. We already do this through stamp duty and inheritance tax. No need for a mansion tax.
And yes, liberal politics should stop slagging off ‘the rich’. The vilification of any target group in society is very illiberal.
Oop’s sorry Tom, re-reading your comment on my comment in the cold light of morning, I see that you did agree that the MT would have no effect on the affordability of housing – my mistake.
R.
In my old Liberal days we tended to argue that since land is in fixed supply its price-increase is a pure rent of scarcity; and so these increases are not “costs” but the economic rent arising from change -of-use planning decisions, and should be returned to the community whose prosperity that creates the demand should not be siphoned-off by land-owners; otherwise landlords become the sole ultimate beneficiaries of all economic progress ( to put it in a nutshell) as a result of other people’s wealth-creating activities. Taxing these rents is not taxing wealth-creation, but returning wealth to the community where it properly belongs, rather than seeing it skimmed-off by brisk operators and land-grabs.
The so-called rich already pay vastly more than their share in tax, and this should be acknowledged. Properties in the vast majority of cases are bought from net income saved, plus loans serviced by net of tax income, and very high levels of stamp duty. An ongoing ‘mansion tax’ would devastate discretionary consumer spending in the UK.