A Mansion Tax is a very bad idea

September 23, 2014 5:13 PM

And here’s why:

It’s unfair

Why should people who purchased properties that have appreciated in value be subject to an arbitrary annual penalty? More here.

Politicians can’t be trusted

Eventually this tax will be extended to more home owners. As with Stamp Duty, thresholds will be lowered and/or frozen and rates increased while house prices go up. This is the case with all new taxes.

Property is already heavily over-taxed

Britain already has the highest property taxes in the developed world. At 4.2 per cent of GDP they are more than double the OECD average.

It would be an administrative nightmare

  • How would further appreciation be treated? Given than house prices increased by 8.4 per cent in 2013, more and more 2 bedroom flats will become “mansions” in the near future.
  • How this would be assessed is unclear. Would there be a revaluation every few years or would average price increases be applied for each local authority? The first approach would be very expensive whilst the latter would be inaccurate and open to legal disputes.
  • Perhaps there would also need to be a “Home Improvements Inspectorate” to make sure owners of homes close to the threshold weren’t surreptitiously building conservatories to turn their terraced houses into “mansions.”

It would distort the market

In the five months after the 7 per cent Stamp Duty rate on properties over £2m was introduced, the number of properties sold by Savills between £1.8m and £2m increased by 37 per cent compared to the same months in the previous year. Yet the number of sales between £2m and £2.2m, just over the new threshold, fell by 29 per cent. Some of this distortion was exacerbated by the clumsy slab basis on which Stamp Duty is calculated. But a new tax on high value properties would have much the same effect. More research is here.

It’s illogical

  • Someone living in a £1.9 million mansion in Surrey with a 1,000 home buy-to-let empire worth hundreds of millions of pounds would theoretically pay no Mansion Tax.
  • But a widow living off meagre savings in a central London home bought in the 1970s which has risen in value to over £2 million would face an annual penalty.
  • The BBC’s Robert Peston believes that “Labour will allow cash-poor mansion owners to roll up the tax they owe, and pay it only when they sell up or die.”
  • So instead the penalties will be passed on (along with 40 per cent Inheritance Tax) to grieving families when the widow dies.
  • Or what if they sell the house? If the tax becomes payable then, that would constitute a large and increasing disincentive for such people to move homes, further gumming up the property market. This would result in a misallocation of residential property assets.
  • If it’s deferred till death, however, that just means short term receipts will be even smaller. And it will be odd that someone with a big tax liability connected to a house doesn’t have to pay it, even though they’ve sold it and pocketed a large sum. Even worse – what happens if the value goes down? Are they still expected to pay this bill even though it wasn’t worth so much when they sold it?

The NHS can improve how it spends taxpayers’ money

  • A quick Google search for “NHS cash crisis” between the dates of 2001 and 2008 will bring up countless tales of the imminent financial collapse of the health service (1 2 3 4 5) at a time when its budget was being increased at a historically unprecedented rate. Despite the latest funding issues the NHS still has the money to employ Third Sector Environmental Sustainability Leads, Car Park Sustainability Officers and Administrators of Green Travel Facilities.
  • Throwing more money we don’t have into an inherently wasteful and inefficient system is counterproductive.
  • In 2010 the National Audit Office said that:

Over the last ten years, there has been significant real growth in the resources going into the NHS, most of it funding higher staff pay and increases in headcount. The evidence shows that productivity in the same period has gone down, particularly in hospitals.

  • There’s no reason to think this time things would be any different without politicians accepting this reality and dealing with it.

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