A ‘mansion tax’ is needed now more than ever


9:04 am - April 18th 2011

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contribution by NTDSMK

An unnamed private individual swept into London and left with a flat for £136 million, reported the Oberver yesterday. Suddenly, my shopping looks incredibly cheap.

I don’t just feel sheer incredulity that there are people who can cough up this much money for, presumably, another home – I’m irked that we might not getting anything at all if they don’t pay tax.

Railing against the obscene amount of money spent on this flat is futile and pointless. The real question is how do we benefit from the buy?

While people can move abroad or shift their funds into tax havens to avoid taxes, property is a different issue altogether. If the mysterious buyer chooses to live overseas and avoid tax, then there is no physical way to stop them doing as such.

The answer is as simple as it is effective. A land value, or “mansion”, tax.

If there was a 1% tax, yearly, on the value of every property worth over £1m, then by 2015 this government could, raise £6.8 million from this very flat alone. When you add this to the amount raised by all other properties of similar values, it’s definitely not pocket money.

The beauty of a mansion tax is that it’s incredibly hard to avoid – property can’t flee overseas. In the heady world of big finance, fast cars and large magnums of champagne it’s easy to forget about the elderly, seeing their social care cut, or families struggling as SureStart centres are closed.

A mansion tax is a small step towards ensuring such individuals must pay their way too.

The clichéd argument from the right will inevitably be that this makes it less likely that the affluent will choose to buy in Britain. However, it is ludicrous to suggest that an individual who spent £136m on one buy, in addition to the fees for the lawyers, would have been dissuaded were they forced to pay £1.36m extra.

At the bottom end of the scale, if an individual buys a property for £1m, they presumably earn exorbitantly more than minimum wage. Yet it’s less than the minimum wage that would go in tax on their property.

Most importantly, a mansion tax sends out the noble message that, if you want to live in our country, you play by our rules and pay your fair share. A mansion tax would raise a lot of money, be hard to avoid and ensure that everyone pays their fair share of tax.


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Reader comments


Yeah, you might be wanting a mansion tax now, but what happens when it turns out the buyer is a slum landlord and that 1 flat is now 5 shit flats? Eh? What then?

2. Flowerpower

The real question is how do we benefit from the buy?

Stamp Duty on properties over £1m is charged at a rate of 5% of the purchase price. So we have already benefited to the tune of £6,800,000 on this transaction.

The new owner will doubtless spend a good deal of money furnishing his/her new home – providing custom to London shops and British businesses.

It would be foolish to deter such buyers by becoming too greedy and grasping.

I’m irked that we might not getting anything at all if they don’t pay tax.

I’m irked that you didn’t check if they will pay taxes – such as stamp duty – before writing your blog post.

The real question is how do we benefit from the buy?

Presuming that you are entitled to benefit from someone else’s actions…

A rich person living in the UK will spend money on goods and services, pay VAT on those purchases, boost income for retailers and boost their profits (on which they pay tax) and employ more staff (who pay tax).

You might want to “punish” the person for the temerity of wanting to live in the UK by whacking an additional “rent tax” on owning a house, but it seems like a really short-sighted way to approach a much larger issue.

Please don’t forget that most large homes are owned by people who don’t actually earn a lot as they are often retired – so your annual tax will just result in them being sold into a market which has been artificially depressed by a punitive tax regime.

I have difficulty understanding why that would be a good thing.

What happens if you’ve simply inherited an expensive property, or if you are an OAP living in a house you bought 50 years ago (ike my parents) which has ogne up in value. Is it fair to charge them annually?

What it’s more likely to do is force them and many others to sell their property, hurting house prices badly in the process. Most “normal” people, not Arab oil sheikhs, will also be dissuaded from buying houses over the 1m mark (which in London doesn’t nevessarily mean that large a house). Which means stamp duty takes will fall after a short blip. Which means the revenue will have to be found from somewhere else.

In short a mansion tax won’t do anyone any favours, and probably won’t raise any revenue anyway. It will badly distort the housing market though.

I stopped reading when it was clear that the author does not understand the difference between LVT and a “mansion” tax.

@Tyler: Heaven forbid we drastically distort the mansion market! :p

7. Luis Enrique

I don’t see that a mansion tax (or a small wealth tax) is such a bad idea, if your objective is to raise more tax revenue or change the distribution of the tax burden.

it probably would cause the prices of ‘mansions’ to fall …. so what?

OAPs or people without big incomes living in mansions would be hit: so sell the mansion.

[in addition to stamp duty, if the property was not the seller’s main residence, won’t the seller get hit with capital gains tax?]

@Cylux – I highly doubt that you’d spend £136m on such a property, in such a prime location for the rich, and convert it into five lesser flats.

@Flowerpower – Like I said, if the individual can afford £136m one one transaction, an extra £1.36m a year is going to matter very little to them. This isn’t going to be a major deterrance, and, to be honest, with corporation tax falling and VAT rising, it’s the less affluent in our society who all too often have to pick up the tab. I don’t feel this is right, and I feel that such a small mansion tax is the smallest amount they could pay. Remember – we no longer have a 50p tax rate. This would work well as a replacement.

@IanVisits – The not paying tax comment referred to after they’d bought the property. After they’ve paid their initial stamp duty, they can pay very little, or no, tax afterwards if they play their cards right. Hence why we need to readjust this balance.

And the whole premise of taxation is in benefiting from other’s actions. The state has things to fund for everyone (healthcare, police etc.) and so we need to get money to fund these things. Hence, the government finds way to benefit from when we make purchases (VAT), when we die (inheritance tax) and when we earn. (income tax) In an economic time when everyone is suffering and our services are still being drastically cut, I feel that we are entitled to benefit from such actions.

Just because they hire people, buy things in the UK and so forth, I don’t feel that exempts them from the collective responsibility to fund our society.

Additionally, I know very few pensioners who own such properties, and the affluent and retired people often have the money to support themselves here. Otherwise, it’s another thing to consider when they buy the house.

@Tyler – If you’ve inherited an expensive property, then the tax should still be paid – just like if you inherit money, inheritance tax is paid. The question of whether a property that has gained in value should be so taxed is a very tricky question indeed. With this article, I’m seeking to promote an idea, not a specific policy – that’s obviously something that, if the time comes, would need to be addressed. My personal view would be that it depends on the circumstances, i.e. whether they were earning or not.

@cjcjc – I understand the difference, however it’s a similar principle – hence why I linked them in such a way.

Hope that’s covered everything. Anything else, please do ask.

Remember – we no longer have a 50p tax rate. This would work well as a replacement.

Did I miss the memo?

@TimJ – The government have announced they’re getting rid of it I’m afraid.

10 – Um, in 2013 at the earliest. It’s still very much alive for the moment.

12. David Boothroyd

There is a very easy way to bring in a tax on enormously large homes and to accomplish several other useful aims in the economy, wider society and local democracy. It would be to abolish council tax and return to domestic rates.

If the valuation were on the basis of capital value rather than rental value and a better system of rate rebates were put in place than existed before 1990 there is no reason why they would not work and be considerably fairer than the dog’s breakfast system of local government taxation we have now.

“OAPs or people without big incomes living in mansions would be hit: so sell the mansion”

Well, two bedroom flats (not “mansions” – though they may be in slightly shabby mansion blocks) in previously unfashionable parts of London are now >£1m.

Are the OAPs who have lived in them for 50 years just collateral damage?

@TimJ – But it’s going. And if a mansion tax was introduced, that would take time too. I’m suggesting this as a replacement or addition.

@cjcjc – I think I covered my stance on that in my earlier comment.

Why start at £1m, or at any arbitrary point?

There would certainly be a large number of £1m homes suddenly worth 990k!

“Well, two bedroom flats (not “mansions” – though they may be in slightly shabby mansion blocks) in previously unfashionable parts of London are now >£1m.”

Really? I did a quick search on rightmove, and the 2 bedroom flats which cost £1m+ are in “unfashionable” areas such as South Kensington, Westminster, Chelsea and Hampstead.

If you are a pensioner with an asset worth £1.1 million, then it isn’t desperately difficult to pay an extra £1,000 per year in tax even if you don’t want to move.

@cjcjc – Yes, but not homes like this which would be raising the big money anyway. The owners couldn’t afford to sell such a property so cheaply, when they would otherwise be getting £136m for it. Property sellers will want as much money for their properties as possible, so will be charging the same high prices. Those who can afford such prices won’t be detracted by a slight mansion tax. Business will continue as usual.

1% on marginal value over £1m, OK, but that isn’t what the author specified.

@15

From your calculation I think you assume that it is only the amount above £1m that is ‘mansion taxed’. I get the impression from the OP & responses that their assumption is 1% of the total value.

Perhaps the OP could clear this up.

@cjcjc – “If there was a 1% tax, yearly, on the value of every property worth over £1m” – yes, I did specify it.

And @max you’re right – I was getting at the total value, not the value above £1m, but I still think Don Paskini’s point stands. £10,000 is less than minimum wage, and to afford such a property I imagine they had a well paid job that would enable them to pay that, even in retirement.

@19 eh? so you didn’t specify the marginal value, you specified the total value

Sorry, pensioner, that’s £10k after all.

This will make the housing benefit “ethnic cleansing” of central London look like a picnic in comparison!

PS – of course it won’t happen, not on the total value anyway

@NTDSMK – fair dos. I think there is a case for charging it on marginal value (which was the Lib Dem proposal) rather than going from £0 at £999,999 to £10,000 at £1 million (which might cause more hassle than it’s worth), but I definitely agree with the general principle here.

“This will make the housing benefit “ethnic cleansing” of central London look like a picnic in comparison!”

Even at 10k taxes, this is a silly comparison.

What the OP’s proposal will mean is that a few pensioners who own assets worth over £1 million have to find a home which costs less than £1 million. Whereas the housing benefit reforms mean that people who don’t have any assets have to move to overcrowded and lower quality homes in areas which are further away from sources of jobs.

Exactly, per Don Paskini, you can’t compare the two. One dramatically hits the less well off, the other might knock a few of the affluent.

To be honest, Don, I see what you’re saying but also don’t think the specific details of a mansion tax particularly matter – the main thrust is that, as a principle, I think we need a mansion tax.

Mansion Tax? Perhaps…I have no strong opinion on this, providing the overall economy and the tax-take are not affected adversely.

LE @ 7: “OAPs or people without big incomes living in mansions would be hit: so sell the mansion.” I work with the elderly; and you clearly don’t. I’m afraid it is rarely that simple: the ‘asset rich-penny poor’ elderly often suffer huge anxiety and distress while they wait to realise their assets to fund their care. And in their haste to sell, they often accept a price well below what they could otherwise achieve. But then, I suspect, your mathematical mind can’t deal easily with anecdotal evidence…;)

NTDSMK: “Just because they hire people, buy things in the UK and so forth, I don’t feel that exempts them from the collective responsibility to fund our society.”

But by so doing, they ARE funding our society ! Particularly via VAT at 20%….

Basically, you want to punish the rich for being rich. You are deluded by egalitarian fantasies, though you probably dress them up for popular consumption in terms of a “more equal” or a “fairer” society. But what, please, is your principle of distributive justice?

Egalitarianism is a non-starter – without massive and oppressive state enforcement, and the result would almost certainly be mass impoverishment if not starvation. (But at least there would probably be equality of misery.) So, I repeat, what is your principle of distributive justice??

MIne is that of John Rawls, the greatest political philosopher of the 20thC —- maximise the minimum….So do not obsess about the rich(est), but rather design functional economic, social and fiscal systems that ensure that those at the bottom get the best possible deal in a functioning capitalist and largely free market economy. And that is broadly the aim of most (nevertheless, rather confused) social democratic parties in the West, including the UK’s Labour Party…

It’s not a well thought out idea. People would forced to dump properties on the market, or you’d see people rip out improvements to cheapen their houses up.

Either would dampen house prices over the 1m mark. It will massively increase demand in the sub 1m sector though, making it harder for 1st time buyers to get on the ladder. I wonder how many people would be tipped into negative equity on this kind of thing?

That’s before you take into account that the tax won’t really raise a great deal anyway. You’ll end up with a situation where non-doms end up owning the “mansions’ as they get to pick up nice cheap big houses and they don’t have to pay the tax on it.

I know it appeals to the Left’s idea that all these rich people should pay ever more tax because its somehow not fair that they are rich and others are poor (even though said people might have worked hard for their weath) but the reality is that squeezing the pips often doesn’t result in more taxes for the exchequer, and also makes life for the poor worse at the same time.

Why is it a problem for you that someone who earns good money able to afford a nice expensive house? It’s his/her own money? They already pay more income tax? Or is it the very thought that some people earn more than others that makes you turn green and shout “unfair!”.

27. Luis Enrique

paul

I’m pensioners having to sell their £1m flats because they cannot afford the tax would find it stressful. such a tax would have to be phased on, so that when people retire they can see the problem coming.

Oh shut up about pensioners!

They can use some of the equity in their property to pay the tax, a mediocre financial advisor could organise it.

All these people with incredibly wealthy houses will be catered to be a small industry of people offering loans payable on death to cover the tax.

If somebody has equity of at least £1million in housing then there will be people falling over themselves to help them.

The few thousand pensioners who are cash poor but asset rich will have no problem covering this tax. It is a laughable objection.

However, property taxes I don’t like as much as land taxes. Land values should be taxed because you really can’t avoid that but nor have you generally done anything to earn the value of the land under your property, that comes from all the people and services that live nearby.

“don’t forget that most large homes are owned by people who don’t actually earn a lot as they are often retired – so your annual tax will just result in them being sold into a market which has been artificially depressed by a punitive tax regime.

I have difficulty understanding why that would be a good thing.”

Then you’re an idiot…

30. DisgustedOfTunbridgeWells

As soon as I saw that title I knew the usual mugs could be counted on with their ‘7 bedroom Belgravia house for a bag of broken biscuits in 1955’ drivel.

31. Flowerpower

If there was a 1% tax, yearly, on the value of every property worth over £1m….

In inner London a modest 3 bed semi would be worth over £1m (or soon would be with any recovery in house prices) but the family living in it might typically have a household income of £50k. Assuming they are already shelling out around £8k – £10k in mortgage payments, do you seriously expect them to find another £10k to pay your mansion tax? Impossible.

If you have £1 million pounds in equity then you are very very very wealthy, even if you have decided to invest it in housing. You can afford to pay a tax on this because you are rich, you just need to turn your equity into income, which requires a mediocre financial advisor.

If you can tell me how to make money out of my house while staying in my house please do let me know.

LE @ 26:

“I’m pensioners having to sell their £1m flats because they cannot afford the tax would find it stressful. such a tax would have to be phased on, so that when people retire they can see the problem coming.

Translating that into English: OK, let’s pick on the elderly today! No, LE, the ‘asset-rich penny poor’ are a vulnerable group — like the elderly in general — with often very, very limited options. And they have at least saved for their retirement/care, while the underclass expect the rest of us to pick up the tab.

LO @ 27:

“Oh shut up about pensioners!
They can use some of the equity in their property to pay the tax, a mediocre financial advisor could organise it.”

Pensioners are generally a very vulnerable group of people, who need support. Why, given their liquidity problems, do you deride the asset-rich few? You, on the left, claim to be compassionate, but it seems you are vengeful, punishing some elderly for ideological reasons…

I repeat (see above) @ 24:

Basically, you want to punish the rich for being rich. You are deluded by egalitarian fantasies, though you probably dress them up for popular consumption in terms of a “more equal” or a “fairer” society. But what, please, is your principle of distributive justice?

Egalitarianism is a non-starter – without massive and oppressive state enforcement, and the result would almost certainly be mass impoverishment if not starvation. (But at least there would probably be equality of misery.) So, I repeat, what is your principle of distributive justice??

MIne is that of John Rawls, the greatest political philosopher of the 20thC —- maximise the minimum….So do not obsess about the rich(est), but rather design functional economic, social and fiscal systems that ensure that those at the bottom get the best possible deal in a functioning capitalist and largely free market economy. And that is broadly the aim of most (nevertheless, rather confused) social democratic parties in the West, including the UK’s Labour Party…

Answers on a postcard, please….

If you can tell me how to make money out of my house while staying in my house please do let me know.

Do you own your home outright, are you over 60? Personal questions of course.

http://www.saga.co.uk/money-shop/equity-release/google-wide/

I’d be thinking of something along those lines.

Given that this would reduce the value of any estate left on death, it would probably act to move forward inheritance tax, as much as act as a tax on mansions.

If a mansion tax were to be imposed, specific plans could (actually would) be created, “leave us x% of your home on death and we will pay your mansion tax until you do.”

___

I feel I should cover myself, I’m not a qualified financial advisor. Anybody taking financial advice from a blog commenter should be sectioned.

@ Left Outside

Clearly you are a bit of a moron, and have no idea what “turning equity into income” actually involves – either selling or remortgaging.

Both would drive house prices lower, and the latter would be much more expensive for the pensioners involved, even if they could remortgage (which is unlikely as they have very low incomes and lower life expectancies so banks wouldn’t accept them).

What you are really saying is that you are jealous that other people have done better than you, and you feel it’s your right to take their money to support you and your lot.

Stop patronising these mostly fictitious pensioners!

I can’t be compassionate about fictitious incredibly wealthy pensioners just because they are illiquid, some pensioners are vulnerable, those in incredibly expensive houses are amongst the least vulnerable. If you have a very valuable asset you can create liquidity quite easily.

I’m not even particularly in favour of a mansion tax, I prefer a land tax, for reasons you can google. I just dislike intensely dishonest arguments.

Not a moron, but I’m still learning, sure.

Both would drive house prices lower, and the latter would be much more expensive for the pensioners involved, even if they could remortgage (which is unlikely as they have very low incomes and lower life expectancies so banks wouldn’t accept them).

Very few houses are worth lots and owned by illiquid people, so the effect on the overall market would be minimal.

If a mansion tax were imposed, financial entrepreneurs would create financial vehicles as I’ve described because there is a profit there. That is the sort of finance I don’t have much problem with.

What you are really saying is that you are jealous that other people have done better than you, and you feel it’s your right to take their money to support you and your lot.

Sigh. Read above comment.

These people haven’t “done better” than me.

The people we are specifically discussing bought houses in areas which were once poor and by doing precisely nothing now live in very expensive houses. What system of desert do you work on?

Their “mansions” aren’t worth much, the cost of construction would be £10,000s, it is the land which is valuable, which they have done nothing to create (unless they’re retired Dutch sea drainers).

39. Luis Enrique

paul

that wasn’t a very good translation. I omitted the word “sure” after “I’m” – as in “I’m sure [you are right that] pensioners would finding selling stressful”. I then suggested phasing it in so it wouldn’t apply to existing pensioners and so that mansion owners approaching retirement would have plenty of opportunity to sell up and move to cheaper housing. You have translated this combination of agreeing with you then suggesting exempting existing pensioners to “let’s pick on the elderly today”.

@Flowerpower – I refer you to Don Paskini’s earlier comment about the kind of houses that are worth that much. If your income is 50k a year, for a whole family, I don’t really see that family living in such a house. Even if we suppose they did, then this is just something else to take into consideration when you buy the house.

@paulilc – This isn’t about “punishing” anyone. This is about funding vital public services and so forth that are being cut at this time. This is about getting the money the government wants to cut the deficit with from those who can afford to pay it most – those with mansions – rather than the poorest students for instance, by cutting EMA. Not only is this necessary, it’s fair. Those with the biggest shoulders should lift the biggest load.

I fail to see how this means I am “deluded by egalitarian fantasies” – a 1% tax, on the entire value, is tiny, a 1% tax on the value above the buying price, as others have suggested, is miniscule. This would have very little effect towards making a more “equal” society. Granted, it has a positive effect, but you’re characterising my stance as being one of demanding universal equality, which doesn’t make sense. What you’ve said contains a big slippery slope – a small mansion tax doesn’t lead to starvation and mass death, Soviet Russia style, or total egalitarianism.

My principle of distributive justice doesn’t come from a particular philosopher or economist. I believe in what’s fair – namely that we have things that need funding (public services, NHS, police) which are incredibly important and must be funded. However, it’s unfair to hammer the poor, who can’t afford it. Instead, we must tax those who can afford it – the more prosperous. Taxation should be progressive, and fair, for this reason. Additionally, in situations such as banker’s bonuses for instance, pay should be reined in as much as we can – for fairness once again.

NTDSMK @ 38:

“This is about funding vital public services and so forth that are being cut at this time. This is about getting the money the government wants to cut the deficit with from those who can afford to pay it most – those with mansions – rather than the poorest students for instance, by cutting EMA. Not only is this necessary, it’s fair. Those with the biggest shoulders should lift the biggest load.”

1. Ideologically, I have no objection to a ‘mansion tax’. But I have many objections to populist un-costed budgetary proposals. What are the unintended consequences of this tax? Will the Exchequer lose or gain overall? (See (2) below)

2. You are assuming that we need to tax more to fill the deficit. However, in general, the higher the tax, the lower the tax revenues – as the taxable simply move their businesses and persons to more tax-friendly jurisdictions…So it’s a question of balance, of what works — not of Marxist/egalitarian ideology, which only produces misery!

3. Are you seriously saying that after 13 years of unrestrained and mismanaged expansion of public services, there is no fat to cut and that we could not retrench to 2008/9 levels without any significant pain? Those of us who work in the private sector regularly experience such contractions — why should the public sector, with its better pensions and often higher pay, be immune??

4. So some cuts, some tax rises are the right conclusion…Does anyone here seriously believe that Labour would be doing any diferent, except at a slightly slower pace? And, frankly, is there any realistic alternative?

The liquid deficient asset rich poor widow make her obligatory appearance. If she exists defer the tax to payable at death. Problem solved. Apparently the Coalition have plans for a mansion tax to finance a cut in the top tax rate. A MT is not as good as a LVT but is better than taxing labour.

@paul ilc

1/2: This isn’t a populist or un-costed budget proposal. It’s a) not designed to simply appeal to popular opinion for popular opinion’s sake and b) un-costed because this isn’t a specific proposal but an idea. And that’s the point of a mansion tax, in regards to 2. A ‘mansion’ can’t be moved overseas, so they’d have to pay such a tax. And, as I pointed out in the article, this would have very little effect on people buying such properties and so tax revenues would rise. At no point have I come anywhere near to advocating “Marxist/egalitarian ideology” – to suggest that I have done is either pure straw man or simply misunderstanding of Marxism. A Marxist/egalitarian approach would be “seize this land simply because the owner is rich, take their assets and distribute them all fairly to the people”. That’s not at all what I’ve said.

3: We haven’t had 13 years of “unrestrained and mismanaged expansion of public services”. Although a great soundbite for the Tories, it bears no factual content. My personal view is that we must make some cuts, but not to the level of the Tories and in a far more fair way. Tax rises in certain areas are also often a more fair answer. The public sector isn’t immune, but the difference is if a private company has such contractions, they lose jobs. All very regrettable, but if the public sector has such a contraction, jobs are lost as well as having awful effects on the areas they serve – take the police, for an example. The suggestion that the public sector has often pay also doesn’t really make sense. John Fingleton earns £279,999 a year, and is the most highly paid public sector employee, according to the Guardian. Bob Diamond got an £8m bonus alone. Some public servants have higher pay but, on average, the private sector is better off.

4: Labour during the election said they’d be doing half as much – half the pain. That’s quite seriously different. Under Labour, I also imagine that it would be far more fairly done than under the Conservatives. And there are realistic alternatives – many economists and politicians have suggested as such. For instance, Ed Balls suggested around a year ago now cutting the deficit at an even slower pace, and many economists have suggested other such ideas. I don’t think that UK Uncut’s idea, that closing tax loopholes would fix the entire deficit, is entirely realistic, but I do feel that such an idea is also one that should be looked into as well.

44. Evan Price

Most purchasers of expensive property are British taxpayers. They purchase the property out of taxed income – pay stamp duty land tax (which should be called land transaction tax as it is not the same as stamp duty) – and pay towards local taxes through council tax. When they sell up, subject to principle private residence relief, they will pay capital gains tax and when they die, their estates will pay tax on the entirety of their assets subject to the reliefs provided for.

That foreigners are able to buy houses here and do so out of incomes that are not taxed here (and may well not be taxed anywhere as a result of different tax regimes in the places where they hail from) does not affect those facts. Yes, a person who is not domiciled here can avoid the income and capital gains taxes as currently constituted. It would be possible, for example, to impose a capital gains tax on all properties on sale and that might ameliorate some of the anomalies that are identified in the post, but the foreigner will probably still pay SDLT on the purchase (which at 5% of the purchase price is not an insubstantial amount of tax).

There are methods for dealing with these issues that would not affect the majority of purchasers of property – who, for the reasons I have outlined above, already contribute considerable sums to the exchequer as a result of their acquisitions. If there was a proposal to limit the Capital Gain that could be taken out of a principal private residence without incurring CGT liabilities, then that would be worth considering – as a means to reduce the taxation incentives that add to a housing bubble – but a Mansion Tax? It would be great fun for many of my colleagues to find methods to legitimately avoid it, while leaving the burden disproportionately to fall on the hapless who are just rich enough to pay, but not wealthy enough to avoid it.

Further, the entertainment and industry that would arise when the system begins would be a great boon for advisers who would spend much time arguing about whether a particular property that has not changed hands for some years was worth just under or just over the threshhold chosen. Much hand rubbing among lawyers, surveyors and estate agents. In addition, the problems associated with the historic bubble in house prices means that many modest houses in one area would be taxed while the same or substantially similar house not very far away would not …

Another problem with proposals for a ‘Mansion Tax’ or other forms of ‘wealth taxes’ is that most proponents do not propose to reduce other taxes and replace them with these proposals, merely that they seek to increase the burden on those who already, in many cases, contribute much to the exchequer. They are a return to the discredited ideas of the 70’s when Dennis Healy wanted to ‘tax the rich until the pips squeak’. In my view, the politics of envy is not attractive politics …

45. Sevillista

Instead of a ‘mansion tax’ (politics of envy yada yada) why not replace council tax with a property flat tax?

Set at (say) 1% of property value regardless of whether your home costs £100,000 or £1,000,000 and designed to be revenue neutral for the Exchequer.

It would replace a poorly-designed poll tax replacement that is bizarrely based on 1991 property values in which billionaires in £136 million flats in Mayfair pay only three times as much as penniless pensioners in Hull bedsits, have beneficial impacts on the efficiency with which housing is used in this country and avoid the unfairness of hitting poor millionaires with special taxes.

@ 36 Left Outside

Most houses, even expensive ones, have a mortgage against them. Houses ARE NOT liquid assets. If you tax expensive houses, you will certianly have a negative effect on house prices, which will push people into negative equity, and depress house prices even more. I’m sure people could find interesting ways to get around the tax, but you manage to contradict yourself in that point as well; either people will find a way to avoid the tax totally, at which point there is no point in the tax, or people will have to pay it, at which point it may as well be tacked onto the mortgage.

The real problem you, and others have on this and similar topics, is that you think there is some never-ending pot of money labelled “rich people” which can always be tapped for ever more cash to pay for what *you* think is more important. The reality is that “rich people” already shoulder the major part of all taxpaying already, don’t feel they get much out of what they pay, and have self-interest groups continuously demanding more of their money.

You conflate social security with redistribution.

As pf 2009, AT Kearney estimated that the richest 1% owned 70% odd of the countries wealth. @Tyler, that doesn’t sound like bearing the greatest burden to me. This isn’t about mercilessly milking the cash cow. This is about funding the things we need in a fair way. It would be unfair to take from those who have not, so we take from those who have and who will miss it least – simple progressive taxation. 1% isn’t a radical demand. It’s not really even going anywhere towards the redistribution of wealth you’re portraying me as talking about in this instance. It just ensures extra, more fair funding, as well as being morally sound.

@45

Tyler was refering to what proportion of tax the rich paid, not how wealthy they were. If you want to see the proportions of income tax paid by high and low earners check this link:

http://news.bbc.co.uk/1/hi/8417205.stm

The top 1% of income tax earners pay 24.1% of all income tax. This of course only covers income tax, but it does show that if the top 1% of earners chose to leave the UK that would be a huge increase in the tax burden for everyone else. And the table excludes non earners.

How many pensioners are still paying mortgages on their homes?

I am talking specifically about the fictional retirees who get brought up everytime a land or property tax is proposed (this has been done since Churchill and Lloyd Georges day when the liberals first tried to bring in a land tax).

Tyler, you are not arguing with a cliche, for arguments sake lets make it revenue neutral, I don’t care. But this is not an unfair way to tax compared to, say, income tax or council tax or fags tax or booze tax, or any of the myriad other ways we collect money.

By the way, you’ve still not answer on the other thread about how you find protectionism welfare maximising.

If you are a pensioner with an asset worth £1.1 million, then it isn’t desperately difficult to pay an extra £1,000 per year in tax even if you don’t want to move.

Quite, you could do so by taking our or increasing a mortgage.

51. Mr S. Pill

Agreed with the OP. Also finding it hilarious about the fictional pensioners dragged into this discussion. Yes – some pensioners are a vulnerable group, but not the ones living in houses worth £1,000,000+ for christ’s sake. If you really care about pensioners in vulnerable situations you’d probably support higher taxation on mansions/land because the resulting tax would (ideally) be redistributed back across the income groups. But of course, the “argument” (if such a loose set of ideas can be framed as such) from our right-wing pals isn’t about protecting pensioners, it is about protecting rich people. Plus ca change…

The problem here are the words “worth” and “value”.

A property is worth what someone is willing to pay for it.
How would the worth of properties be calculated? The same way as they currently are for council tax?
The problem is that these are fundamentally elastic notions, the “value” or “worth” of these buildings is not intrinsic but rather it is dictated by the whims of the market. And the market would necessarily be impacted by this kind of taxation.

Unless there is an offer to buy on the table, any valuation of a property is conjecture.
Unless you were offering to pay £1m for their flat, the OAP who bought it for £10k in the sixties would be well placed to argue the toss, frankly.

I take it no-one here has ever had the fun of inheritance tax valuations – a relative of mine died, and the valuation for inheritance tax was based on a house 25% bigger 20 miles away (in a better position) that was sold two years previously, because it was the only comparator the tax men could find.

Now this was successfully challenged (because members of my family will argue about anything, especially with government officials…) but kind of makes the point that it would be a bit difficult to value every property in the country.

I also have to ask, is there actually a legal right to tax land – it implies the state owns the land in the first place, which is a rather major claim (albeit one that could b historically interesting).

54. Mr S. Pill

@51

“is there actually a legal right to tax land – it implies the state owns the land in the first place,”

Hmm? Not really, we tax loads of things that are not state-owned by implication (top of my head – income, cigarettes, luxury goods, petrol).

S. Pill,

Actually we justify most of those taxes on the grounds of costs (to healthcare or of road upkeep (and environmental damage)).

We don’t have a specific luxuries tax anymore (unless you want to claim VAT). But these have a long tradition of being a form of social control – and I doubt we want to go down that road. Also worth noting that in origin, supplies of most luxuries within Britain were royal monopolies, which were licensed out, so taxation could be justified on that basis.

I also have to ask, is there actually a legal right to tax land – it implies the state owns the land in the first place, which is a rather major claim (albeit one that could b historically interesting).

I’m not aware of any legal requirement, at least in British law, for a specific tax to be authorised.

If parliament says lets tax land values, then there isn’t much anybody could do about it.

The government doesn’t own my income, but they can still tax itm, for instance. The state has a much better claim to tax all the land within its borders than it does the income earned by people who happen to live there.

Evaluating the value of a house is very difficult, as it would be for land. But there are more transactions of land (every property transaction) than there are of similar houses, as you experienced. It would be difficult, but not impossible to run a land tax. It would need to be appraised much more frequently than council tax is, but it would be a much much better system.

57. Mr S. Pill

@53 Watchman

Sure, and we could easily justify a mansion tax just as we justify other taxes. I’m not really sure what point you’re getting at here? Oh and yes I was referring to VAT when mentioning luxuries (although that’s another can of worms entirely!).

58. Evan Price

@48 –
“If you are a pensioner with an asset worth £1.1 million, then it isn’t desperately difficult to pay an extra £1,000 per year in tax even if you don’t want to move.

Quite, you could do so by taking our or increasing a mortgage.”

Not sure that someone who is very old would be able simply to increase the mortgage … something about survival rates etc. What they may be able to do is to seek equity release or some sort of partial sale to a family member or investor/speculator.

@51
“I also have to ask, is there actually a legal right to tax land – it implies the state owns the land in the first place, which is a rather major claim (albeit one that could b historically interesting).”

We currently tax land through a number of authorised systems of taxation – IHT, CGT, Stamp Duty Land Tax and even Council tax or Business rates. The right to tax anything arises from Act of Parliament – the Finance Act and other primary legislation that raises tax.

As to the ownership question – assuming that you own your land ‘freehold’ in England & Wales, you own the freehold tenure of your land to the Crown – the Crown has a superior title; you have what is, in effect a form of subsidary right – the terms are that you and your successors in title have the right to use the land in perpetuity (for ever) without any obligation by service or otherwise to the Crown – there used to be other tenures requiring varius sorts of service to the Crown but these were all abolished over the centuries. Believe it or not, some of the English legal textbooks on land law explain this by referring to the Conquest in 1066! The result is that your tenure is subject to any right or demand the Crown may legitimately make on it … and that is now done by Act of Parliament.

I think Watchman is talking about http://en.wikipedia.org/wiki/Allodial_title this.

But there is no Allodial title land in England, and only a little in Scotland.

All land is ultimately related to “the crown” and so we can tax it pretty simply. Would the chancellor even need a new law or could he announce it in his budget?

51. Watchman

” I also have to ask, is there actually a legal right to tax land – it implies the state owns the land in the first place, which is a rather major claim (albeit one that could b historically interesting). ”

A more interesting question is on what basis do landowners claim to own the land ? Who was the original seller of the land? Pretty obvious that there could not be an original seller or gifter of the land. If we go back far enough someone must have sold or gifted land that did not belong to them. Did the person who now claims ownership or the original seller create the land? Land is a natural monopoly that can’t be created, it was formed with the earth and one person has no more right to ownership than another person. If one person claims exclusive use they should compensate everyone else for depriving them of the use.

If I create a piece of software, I can claim ownership because my labour created the software. I cannot create land. Therefore, extracting economic rents from the labour of others for the use of the land that I did not create is parasitical. I am a monopolist who is extracting value from others by just existing. If I did not exist the land would still exist so I add no value. Assume all the population have skills that add varying degrees of value to the human capital pool of the UK. If one person dies the human capital pool is depleted through the loss of their skills. What happens when the landowner dies? Nothing. The value of land does not fall through their death. The land capital pool is in no way diminished. They did not add any value because land derives its value from its use not its ownership. The price of Apple stock would fall massively with the death of Jobs, because he adds value. Landowners and I am one of them should compensate everyone else for being de facto monopolists.

61. Mr S. Pill

@58

+1.

Richard W,

I added value to my land by putting in a new bathroom.

So can we ignore the pretence that land is a zero sum – if we need more floorspace, we can build extra levels on it for God’s sake. Like any other commodity, it can be improved, made more valuable, made more productive or covered in nettles (albeit that last tends only to happen to land – but you could cover say copper in nettles if you wanted…).

I do not disagree with compensation for using land if you want to argue for the natural monopoly line (albeit it is a strange definition of monopoly – there are at least 60 other natural monopolies on my road similiar to mine for example) – perhaps a tax on sale value (I actually can’t see why we don’t have VAT (if we must have it) on land).

But a tax on land value itself is what is called a rent – a fee for the use of something. It implies ownership belongs to the receipient of the tax. And the state should not be a rent-collector, because that means the state has vested interests.

I still hold the only fair means of taxation is to tax income – it allows people to know what they contribute to government, it means those without income are not taxed, and it means the rich contribute more than the poor.

60. Watchman

“I added value to my land by putting in a new bathroom.”

You added value to your property with your new bathroom. Land is not property.

“So can we ignore the pretence that land is a zero sum – if we need more floorspace, we can build extra levels on it for God’s sake. ”

Still confusing property with land. Land is perfectly zero sum. Maybe you would like to tell us how you can add to the fixed supply of land. Perhaps space rocks?

“Like any other commodity, it can be improved, made more valuable, made more productive or covered in nettles. ”

Well yes, the economic rent of land use can be improved. So what? A pretty strong incentive to improve its use if one is being taxed for owning it.

” I do not disagree with compensation for using land if you want to argue for the natural monopoly line (albeit it is a strange definition of monopoly…”

Dig up Adam Smith, Ricardo, even Winston Churchill and every economist since and tell them land is a strange definition of monopoly. It is the ultimate monopoly.

” But a tax on land value itself is what is called a rent – a fee for the use of something. It implies ownership belongs to the receipient of the tax. And the state should not be a rent-collector, because that means the state has vested interests. ”

Well it can’t belong to the person who claims exclusive use because they did not create the land. As long as someone claims exclusive use for something that they did not create everyone else should be compensated for being denied the same use. Land has the same value no matter who owns the land. The value derives from its use and location not its ownership.

” I still hold the only fair means of taxation is to tax income – it allows people to know what they contribute to government, it means those without income are not taxed, and it means the rich contribute more than the poor. ”

Taxing labour means people are living off the labour of others. Taxing the economic rent of land is much more efficient because land derives its value from the efforts of the whole community. If land is not taxed only the landowner gains the full proceeds from the the contribution of others.

Watchman building a bathtub on some land adds almost no value.

What adds value to land is it being in central london. Imagine your house is in SW1 rather than in Merthyr Tydfil.

I picked those randomly, but it is pretty neat.

In SW1 it is £280 a week to rent. http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=1&pid=7570641

In Merthyr it is £90 a week to rent. http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=1&pid=8151516

That has (almost) nothing to do with the properties, or how many bathtubs they have, but with the location and the value of the underlying land.

But the people who own that land have done nothing to make it worth what it is. £200 a week.

Do you see the difference between a property tax and a land tax?

Sorry, sloppy editing led me to imply you are welsh. I whole heartedly apologise (as a welshman).


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