Like every other estate agent (along with almost all London home owners) we think the mansion tax proposed by Labour Party Ed Miliband during his conference a couple of weeks ago is a terrible idea.
Labour has pledged to bring in a new levy on homes worth more than £2m if it wins power at the next general election. Not only is the policy playing to the lowest common denominator – the idea that somehow more punitive taxes on the asset rich will solve all of our economic problems, the details are also pretty sketchy. For example, the levy is estimated to make between £1.7bn and £2bn a year, yet experts have predicted that the amount will fall short. This raises concerns that, like inheritance tax and stamp duty, the levy will end up pulling more and more people into the net.
Here are some reasons why we think the mansion tax is a bad policy.
1. The only people to benefit will be tax lawyers
Heard of the marquis who blew up his castle in the French city of Poitiers in 1955 rather than face punitive taxes? Or what about the practice of blocking out of windows to avoid the window tax in the late 17th century? People respond to incentives and the mansion tax will be no different. There will be many a lawyer rubbing his/her hands together with glee, thinking up creative ways to avoid the levy. It’s unlikely the National Trust would be subject to the tax along with other charitable institutions, so don’t be surprised to see an array of new property-owning ‘charities’ emerging! There could also be moves made by families owning large properties to divide them up into flats, with all of them valued at less than £2m. So then you’d have a bizarre situation where someone with a flat in prime London may be subject to the levy, yet the owner of three flats outside London all worth £1m may not have to pay.
2. Tribunal overload
Valuing property is not as easy as it sounds. How much one person is willing to pay for a home, differs from the amount another may offer. How would the taxman or a government surveyor work out how much said property is worth? And who would be right? The tribunals would be full up with those whom own properties on the threshold contesting the amount these properties are worth. And all of these tribunals would cost money and time – potentially outstripping the amount the tax raises in the first place.
3. The questions of ‘fairness’
Ed Miliband has talked a lot about how fair this tax would be, due to the fact that there are a lot of younger people who are unable to afford homes. Not only this, but the NHS is viewed as a national treasure and the idea of investing the money raised into this feted institution is bound to be seen by some people as a positive thing. However, there’s also the question as to how equitable this tax would be if those with relatively modest incomes yet with expensive houses would be forced to sell up. Many people who purchased their homes in the 1980s and 90s will have seen an enormous increase in the value of their property yet not necessarily in their incomes. In fact, some of these people will likely be pensioners. Although the details aren’t clear yet, it’s been hinted that those who couldn’t afford the tax would see it rolled over until the property is sold later. In other words, extra inheritance tax. As well as this, the tax could end up forcing less rich people out in their homes, which would then be purchased by those who have more money and who can afford to pay annually. This hardly denotes fairness.
4. Top of Form
The mansion tax is not a logical policy and history shows such taxes end up backfiring. However, it’s not time to panic yet. Some backbench Labour MPs (concerned, no doubt, about their own ‘mansions’) are asking pertinent questions as to how the policy would work. We can only hope that this idea will be abandoned when it comes to light as to how little the tax would raise in revenue.