The sudden popularity of the Lib Dems after the first debate meant a sudden rush to catch up with their economic policies. But there is one policy – perhaps their most famous one – that people still don’t seem to get.
It is the mansion tax. An article in The Times today claimed that it will really do for the central London rich – what with the “stuccoed house” in a Notting Hill garden square and the rectory in Gloucester, lots of them will find they have two houses worth more than £3m, and will therefore be hit with a bill of “at least £40,000 a year.” Sounds nasty doesn’t it? But it isn’t quite right.
The mansion tax (to be set at 1% should Clegg end up with the power to force it through) doesn’t work like stamp duty, in that it is charged only on the amount over the threshold, not the amount below it. So if your house is worth £2m you don’t pay anything and if it is worth £2.5m you pay 1% of £500,000 – £5,000. That means that even those with two houses worth £3m each will be paying a bill of well under £40,000. More like £20,000 in fact.
Overall, says Henry Pryor, the average tax payable will be around £12,250 and a total of 80,000 houses will be affected. So the tax won’t bother the under £2m market much (except at the margin – there will be high demand for houses priced at £1.9m) and it isn’t quite as dramatic as many commentators have suggested.
That said I still hate it. Not because I disapprove of taxes on property in particular (I am, for example, very keen for everyone to pay capital gains tax on gains made on primary homes). But because I hate double taxation. And the actual cost to the home owner in pre-tax income is much more than the average that Henry pinpoints. Odds are that anyone owning a £2m-plus house has already paid at least 40% in tax on the money in the first place. So £12,250 is actually costing him or her more like £20,500 in pre-tax income.
That’s a serious amount of money for even the well off to come up with – anyone who is remotely cash poor will have to sell up and move on, leaving most of London lived in by hedge fund managers and anyone who got out of Greece in time.
On the plus side, outside prime London, houses aren’t moving out of the £1m-plus bracket and into the £2m-plus bracket in a hurry. Recent numbers showed prices down 1.5% in the first quarter of the year, while mutterings from the likes of Next about how consumer spending is bound to slow post-election should remind us that government spending cuts won’t just cut the deficit: in the short term at least, they’ll cut most of our incomes too. Low interest rates may yet stop house prices falling as real incomes fall, but it is hard to see how they can support them rising.