Merryn's Blog

Before we talk about new taxes, we should get people to pay the existing ones

The idea of new property taxes just won't die. But before we introduce any new taxes, we should make sure people pay the existing ones first.

The idea of a new property tax in the UK just won't go away. Some think we should shift from taxing income entirely and go after only property or perhaps land. But even those who think the tax status quo should remain much as it is, still seem to think that anyone with a house worth over a million or so should be paying more.

I don't buy this. Why? I've written about it here before, but it comes down to a few things. First it will be difficult and expensive to organise (who values the houses?), it will distort our already dysfunctional property market, and it will be subject to fiscal drag (first expensive houses, next everyone).

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It is also yet another double taxation. We already have a high-end property tax inheritance tax (IHT). If you own anything worth more than £650,000 this tax already ensures that your family loses 40% of it on your death. That seems like a pretty good wealth tax to me. It is also worth noting that most countries that do have a high property or land tax of some kind either have very low IHT (Denmark) or no IHT at all (Sweden). You can't really have both.

So given all this, why won't the idea die? The answer is simple: most taxes are in some way avoidable, but taxes on already-owned property are thought not to be. Non-doms and the rich can usually find a way to avoid our income taxes, our IHT and even our stamp duty note that a huge number of the UK's top end houses are bought via offshore companies, which cuts the stamp duty bill to almost nothing.

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But there is a problem with all this. First property taxes are very easy to avoid. They are in fact entirely voluntary. Don't want to pay them? Don't own property. That might be a lot to ask of a middle class family living in Surrey, but the super rich will just sell up, rent in London if they still want to stay, and own in Monaco instead.

So rather than change our tax system for the worse (yes, it is possible) by adding in yet another complication, it seems to me that we should work harder to shut all the loopholes that allow people not to pay the taxes that already exist. Why are non-doms still allowed to live in the UK but not pay the same taxes as the rest of us? All they have to do is chuck in a fee of £30,000 a year and they pay no income tax, Capital Gains Tax (CGT) or IHT on all the assets and earnings they keep offshore.

Why is it still possible to set up a trust - or even to have a trust - that is designed to avoid tax? Why are most of the really expensive houses in London bought in such a way that no stamp duty is payable on them? Why is CGT so much lower than income tax? Why should you be entirely exempt from CGT on assets accumulated at home when you retire abroad? Why do footballers get to pay less tax than everyone else? Why isn't the IHT loophole that allows the rich to give away surplus income with no penalty not better policed? Why are there still more than 50 exemptions for IHT in the first place? And why on earth isn't CGT levied on primary homes?

I don't like many of the taxes we levy in the UK, but given that we have them it makes sense to me that we make sure everyone pays them before we introduce any new ones. I accept that accountants can be creative, but just how hard can it be to make sure people pay some tax on income? There are constant calls for new tax breaks and loopholes big and small across the UK. My inbox has just pinged with a call to up the limit on which companies can offer tax free financial advice to employees, for example. Who knew employees had this tax break in the first place? And why do they?

Sure we all want the UK to be better educated when it comes to finance, but it is this constant drip, drip of reliefs and confusion that makes UK tax payment and collection such a nightmare. We'd all prefer tax to be simple and we'd all like it to be less onerous for the lower paid, but the more loopholes we allow the less simple and expensive it gets. Let's not forget that the cost of tax avoidance (not evasion, avoidance) in the UK is estimated to come to more than £40bn. That's real money.

George Osborne promised to review all our loopholes last year, just as Darling did in 2009, and to close many of them. He's had a go at a few. But he's still missing quite a few of the big ones.

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