The mansion tax: a patently bad tax that won't just hit the 'rich'
The mansion tax has been sold to us as a tax on the rich. But as Merryn Somerset Webb explains, it won't just be the rich who will end up paying it.
We've written here several times about the mansion tax. It is interesting because it is effectively a location tax (see previous posts on this). But it is also a shockingly bad idea because it doesn't replace any of the bad taxes we already have. It just piles on top of them.
So, we get stamp duty, we get inheritance tax (some people consider this an income tax on the living, some a property tax on the dead), we get council tax and we get the new mansion tax.
Like all new taxes, this one has been presented by the government as a tax on the rich, and only the rich. But of course, as always turns out to be the case, this is absolute nonsense.All taxes eventually trickle down until they are paid by all but the homeless and destitute (witness income tax). And so it will be with the mansion tax.
Knight Frank has just done an in-depth study of the £2m-plus property market in the UK (the Lib Dem idea is to tax only those for now) and found that, without extending the tax down to at least all houses costing £1.25m or raising it well above 1% a year, there is no way it will raise the £2bn claimed. Taking it down to £1.25m would mean that around 140,000 households would pay the tax. And that's just in the first year.
Most people will by now be familiar with the concept of fiscal drag (the main means by which our government manages to regularly increase its tax take). Assume that this will be used as much as possible with the mansion tax ie, that the limit for it will not be raised in line with house-price inflation and even if the threshold were set at £2m, there would be 775,500 houses paying the tax within 25 years (that's all houses currently worth £540, 000 or more).
When does your home become a 'mansion'?
The impact of 'fiscal drag' on the number of properties affected by a mansion tax
|Number of years following the introduction of the mansion tax||Cumulative house price growth*||Current value of properties caught by a static £2m threshold £||Number of properties caught by a static 2m threshold|
|Source: Knight Frank Residential Research, Land Registry, HMRC, Nationwide|
|* Assuming the same level of future growth as seen over the last 25 years|
Source: Knight Frank
Would all those people be rich? Possibly. But the ownership of a £540,000 house with a mortgage would be a pretty flexible definition of rich (Knight Frank reminds us that the Help to Buy scheme goes up to £600,000).
The truth with this tax (as with all taxes) is that it is designed to look like an attack on the undeserving rich. However, it actually puts in place the infrastructure for a tax attack on the middle classes. Knight Frank, like all estate agents, is obviously predisposed to loath the mansion tax, but their report does still raise all the right points. This is a transparently bad tax as it currently stands. The Lib Dems should give it up.