The wealth tax is back. Every time I think that Vince Cable’s idea to crush the rich by making them pay an extra levy on their value of their houses (maybe from £2m up, maybe from £1m up) is dead, someone writes an editorial on it, the Today programme picks up on it, and off we go again.
I have written about this here before so I won’t repeat myself too much. The main points are:
• we already have a wealth tax, albeit a badly collected one (IHT);
• it would difficult and expensive to collect;
• it adds yet another layer of double or even triple taxation to an already unfair and complicated system;
• with fiscal drag, it will be no time at all before it is not a wealth tax, but an everyman tax – just like the 40% rate.
We all know how this stuff works, so why would we agree to a wealth tax unless another tax was scrapped at the same time?
However, there is one group on which I think a mansion tax might be worth discussing: the non-resident rich.
Look around central London at night. See any lights on in the houses of Mayfair or Chelsea? No? That’s because no one lives there. All too many of the very high priced houses in the centre of our capital city belong to foreigners who spend all their time somewhere else.
That comes with a cost for us: it pushes up house prices throughout the city and it makes London a much less liveable place all round (you can’t form a community in London with neighbours who live in Athens and Dubai).
But it comes at very little cost to the non-resident investors. They rarely pay stamp duty, and they pay no other taxes during their holding period other than council tax. That makes them, as an irritable friend trying to buy a house in London puts it, “effectively very cheap safety deposit boxes in a safe well regulated economy for those who make their money in less well regulated economies and who aren’t in the UK often enough to make a material contribution to the domestic economy”.
Put your money with a wealth manager in an effort to keep it safe and it will cost you a good 1% (plus) of the value of your assets a year. Buy a £10m house in Mayfair and your annual management fee/deposit box security fee will be the price of Westminster council tax. That’s £1,376 – something of a bargain if you think of it as a management fee charged by the UK state/taxpayer to the foreign investor.
Particularly interesting in this context is the fact that, while the UK doesn’t much seem to fancy taxing high value property owned by non-residents, other countries have no such qualms.
If you look at the budget passed in Italy in December, you will see that it includes a levy of 0.76% of the value of property held abroad by Italians resident in Italy, minus any similar taxes already levied in the country in which the property is held.
A good slug of central London property is owned by Italians. It seems that if we won’t take taxes on non-resident-owned property in our own capital city, Italy will do it instead.