SOME QUESTIONS ON THE MANSION TAX
As the possibility of a new wealth tax appears to be returning to the agenda ahead of the Party Conference season and the Autumn Statement, a new briefing note published today by the Centre for Policy Studies highlights many of the inherent flaws in proposals for a Mansion Tax. These include:
- It would raise very little money. If the average net Mansion Tax received from these properties was £20,000 a year, the total raised would be £1.5 billion. That is equivalent to 0.25% of government revenues.
- It would be very difficult and expensive to collect. The market for high value properties is highly discretionary. Accurate valuations are difficult to establish. Yet all 74,000 homes above the threshold, and presumably many more below the threshold, would have to be valued.
- The UK already has by far the highest property tax take of any OECD country: property taxes contribute 4.2% of GDP compared to the OECD average of 1.8%. Within that, high-end property owners already pay a disproportionate amount.
- High value homes already pay more than their fair share in tax: the highest 1.6% of sales yielded 26% of all residential stamp duty land tax receipts in 2010, while the top 0.7% of housing stock held at death contributed 36% of inheritance tax receipts from residential property.
- Recent changes to the SDLT charging structure mean that the same top 1.6% of sales would have accounted for 34% of all residential property SDLT receipts at today’s rates. In addition proposed avoidance provisions mean that more high value property is likely to fall within the inheritance tax net.
- The Mansion Tax would hit the “asset-rich, cash-poor” hard. 31% of properties in London worth over £2 million have been in the same ownership for over 10 years, 15% over 20 years. Many of these long-term homeowners may well be unable to pay a new tax averaging £20,000 and would thus have to take out equity release products or sell their homes.
- One of the main justifications for the Dilnot proposals to cap the costs of long-term care – which have been welcomed by the Coalition – is that many individuals are today obliged to sell their homes to pay for their care. That is considered a bad thing. Yet the Mansion Tax would achieve precisely that end.
NOTE: The author of this briefing note is Tim Knox, Director of the Centre for Policy Studies. Data supplied by Savills Research.
Tim Knox, Director of the Centre for Policy Studies, commented:
“The most recent attempt to introduce a wealth tax was made by Denis Healey in 1976. In a memo marked “secret”, HM Treasury then advised that the proposed wealth tax “would produce little revenue, be extremely difficult to administer and risk serious damage to the economy”. Denis Healey later noted that: “We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” We now have the extraordinary spectacle of a Conservative-led Government considering the possibility of introducing a tax dismissed as unworkable 36 years ago by a Labour Government.”
Lucian Cook, Director of Residential Research at Savills, and author of Taxing Mansions (published by the CPS earlier this year) commented:
“‘The common perception is that owners of high value homes pay a disproportionately low level of taxes. Our analysis suggests quite the contrary, especially given the recent changes to the stamp duty land tax regime. A mansion tax, with a fixed threshold, would distort market dynamics and really create a threshold at the £2 million mark. And at a human level, it would hurt those cash-poor long-term owners whose homes fall into the so-called ‘mansion’ bracket only by dint of house price increases.”
Liberal Democrat Leader Nick Clegg’s calls for the tax and the CPS argument against were outlined in a Bloomberg news article. Mayor of London Boris Johnson has since had his say on the issue: “I Iike Nick Clegg but… He knows it. I know it. The idea of a mansion tax is crazy.”
Several prominent commentators cited the facts and arguments outlined in the briefing note:
Simon Jenkins, The Guardian: Council tax: the easy way to make mansion-dwellers pay
Allister Heath, The Telegraph: If you want the rich to pay more tax, let them grow even richer
Fraser Nelson, The Telegraph: Won’t George Osborne learn the lesson? Wealth taxes simply don’t work
Allister Heath, City A.M.: The Liberal Democrats’ attack on middle class will backfire
Fraser Nelson, Coffee House: The dangerous attraction of wealth taxes
The CPS has been making the case against the Mansion Tax since the publication of Lucian Cook’s initial report ‘Taxing Mansions: the taxation of high value residential property‘ in March.