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September 25, 2014

Comments

Jim

Pedantry: Owners of a house worth £2m will pay little or nothing, if what we end up with is similar to the Lib Dem proposal of a 1% tax on the value *above* £2m. It's the homes worth multiples of £2m which will produce most of the revenues, so let's not perpetuate the myth that it's those in homes worth 'only' £2m who are being hit.

Alix

More pedantry, I think the word "retired" is missing from para 3, as of course working people on low incomes also need to be near their workplaces. But all the debate has been about retired people and I assume this is basically correct.

Jolyon Maugham

Not sure you'll see the distortive effects around the £2m mark. Unlike stamp duty land tax, there's no fiscal precipice. Your liability to the tax as you move up-market will be 0,0,0,1,2,3 etc... But otherwise great post.

fake

Take london out of the question, would anyone care?

Luke

Why do people go on about the difficulty of valuation? There are hundreds, probably thousands, of surveyors who spend their time valuing properties. That's their job. They are called "valuers", the clue being in the name.

Every time someone gets mortgage, there's a valuation. There are thousands of valuations done every year to see if (and how much) inheritance tax is payable on an estate. Yet suddenly the idea of valuing a property is seen as impossible.

And there's an easy way to appeal against a valuation - if you think your house is only worth £1.8m, put it on the market for £1.8m.

Luis Enrique

here is a recent paper - which I haven't read but just came across whilst looking for something else - about the effect of the mansion tax in New York on prices:

http://www.columbia.edu/~wk2110/bin/mansion_tax.pdf

Luis Enrique

note New Yorkers pay above $1m, quite a gap from our £2m

Phil

"the mansion tax penalizes today's owners of expensive homes whilst leaving tomorrow's owners unscathed"

Isn't the second part of this - a tax that's effectively expenditure-neutral - also a feature rather than a bug when it comes to levying a tax? Buyers spend the same amount of money they would have done, but a larger proportion of it goes into taxation.

Mick Beaman

Let us not confuse the Mansion Tax with a Land Tax.
RICS reckon that most valuations (around two thirds) are accurate to within 10% and valuing houses is generally easier than valuing commercial property. It is very, very much more difficult to value land, so while I love the idea of a land tax, the practicalities are scary.

Deviation From The Mean

"It is very, very much more difficult to value land...the practicalities are scary"

Don't local authorities do this all the time? And don't courts arbitrate if there are issues?

Dipper

We are living in momentous times. The UK is manifestly not competitive on the world stage and unable to pay its way to the tune of £100Billion pa. Economic "growth" is largely achieved through foreigners moving themselves and their jobs to the UK. The fundamental assumptions and relationships that have underpinned our society have been washed away by the financial crisis.

It is time for a reshaping of the power relationships between workers, capital and the state, a time for ambition for workers, and action to build a state where workers can take on the challenge of the new world and prosper ... and Labour's big idea is a consequence-free magic tax to raise 2% of the deficit and spend it on the NHS.

Its just the complete poverty of any notion of the task we are facing, and the complete inability to produce any policies that might make a difference to anything.

Stevenclarkesblog.wordpress.com

"In this sense, the mansion tax penalizes today's owners of expensive homes whilst leaving tomorrow's owners unscathed."

That goes against nearly every other policy in this country, which seeks to protect today's owners of property at the expense of tomorrow's owners.

rogerh

First they came for the mansion owners, then the band H'ers and as sure as night follows day the rest will follow. On its own the mansion tax looks like petty cash so once it gets started the coverage will have to spread more widely. Anyway, check out the Country Life property site. £2M is well down the list even out in Gloucestershire, so there will be a lot of antis, mind you they probably won't tick Ed's box anyway.

Surely this points to a much bigger problem - tax receipts are not going to go up much so there will be a big problem funding the deficit and raising funds for say the NHS. The game at present seems to be to squeeze a little here, a little there and to flog stuff off to the private sector. A combination of commercial confidentiality and ineffective regulation and carefully cultured lethargy will ensure Jo Public pays more for less which is how it has to go anyway, less honest this way though.

gastro george

And now Kate Barker steps in: http://www.theguardian.com/politics/2014/sep/25/mansion-tax-very-disruptive-housing-market

Who would have thought that government policy could affect markets?

John Moss

Any tax on "wealth" betrays a fundamentally flawed approach. It assumes that those with "wealth" also have income or savings with which to pay the tax on their wealth. It is perfectly possible that an elderly couple relying solely on the State Pension are living in a £2m+ home.

There is no prospect of their income covering even the Lib-Dem alternative of a marginal value tax. If they have no savings, or do not wish to deplete them, they would be forced to sell.

However, forcing them to sell, also forces them to incur other significant costs in legal and agency fees, removal costs and that other "Mansion Tax" Stamp Duty. (A far more appropriate property tax as its impact is factored into a one-time decision and not subject to arbitrary political adjustment after the fact.)

Deferring payment may be possible and I suppose after 10 maybe 20 years the flow of deferred payments might stabilise, but hardly something to bet the farm on, especially as political pressure to scrap the tax - and presumably with it, any deferred liability would grow.

Ultimately, by promoting such a flawed scheme, Labour and the Lib-Dems confirm that they are out of touch with the real world.

If you want to raise revenue, do it by lowering tax rates and simplifying taxes to attract taxpayers and make avoidance less attractive.

Neil

"London's house prices have soared for several reasons, but none of them because of the efforts of their owners. It's fair to tax people if they reap a benefit with no effort."

This line is so tremendously wrong that I can barely put it into words. If I buy a house shortly before a property boom, the theoretical market price of my house may well go up - BUT I WILL GAIN NOTHING. I have exactly the same asset as I had before: one house; no more no less. It won't spontaneously acquire extra bedrooms.

IF I choose to sell my house at the peak of the market, I will get more money than I paid for it, and at that point I have indeed benefited - and we have a perfectly good tax for that already: capital gains tax. But if I don't sell, one house is one house and I have gained nothing.

Think about it this way: I buy just before a property bubble starts to inflate. The bubble causes the notional value of my house to go above £2m, and you start pinging me for taxes. Then the bubble collapses, and my house drops back down to its original price. I've spent all this time paying tax because of my "unearned gain", and in the end I don't get the gain at all? Where's the justice in that?

No, I'm sorry, no. This is terrible, illogical policy and it must be opposed.

TickyW

@Neil
"IF I choose to sell my house at the peak of the market, I will get more money than I paid for it, and at that point I have indeed benefited - and we have a perfectly good tax for that already: capital gains tax"

Wrong!
Capital Gains Tax is not levied on Principle Private Residences. People do not pay capital gains tax when they sell their PPR at a profit.

As for paying a tax in good years but not in bad years: welcome to the work of work! Workers pay income tax on their earnings in good years and in bad years they may pay nothing (or even get a meagre subsidy via unemployment benefits). Is there a logical reason why a wealth tax should not recognise variations in a taxpayer's circumstances, just as income tax does?

gastro george

@JohnMoss. It's amazing how such a high proportion of large houses always seem to be occupied by the near-mythical pensioner-on-the-breadline.

@Neil. Too simplistic. Think about multiple properties. Think about re-mortgaging which releases capital.

Rahul

A point not touched on by Chris is that this is a tax on the consumption of £2M+ houses, not on their ownership (i.e. not a wealth tax). The tax makes no allowances for the relative debt/equity financing of the £2M+ house, making someone with 0% equity (effectively a renter) as liable as someone with 100% equity (full ownership).

Neil

@TickyW: If Captital Gains Tax is not currently levied on principal residences, and you want to tax people's "unearned gains", there is an obvious solution that presents itself - start levying Capital Gains Tax. Duh.

My whole point is that until you actually come to sell your house (or, as gastro George points out, taken other steps to release capital), YOU HAVE NOT MADE ANY GAIN. The nominal value of your house, estimated against on the basis of the prices at which other people's houses have sold, is NOT reflective of any actual gain. One house is one house, and remains one house until you sell it, at which point it becomes a pile of cash. If that pile is bigger than the pile you used to buy the house, the difference is income and can legitimately be taxed. But up until that point, you are not in any real sense wealthier than you were.

"Is there a logical reason why a wealth tax should not recognise variations in a taxpayer's circumstances, just as income tax does?" --> An income tax IS a wealth tax that recognises variations in a taxpayer's circumstances. You have received income? Then your wealth has increased, therefore we levy a tax. You have not received income? Your wealth is unaffected, therefore no tax is due.

Neil

@Gastro George - good point, but remember what a mortgage is: it's borrowing against FUTURE earnings. If the nominal value of your house goes up, you might well be able to free up some capital through a remortgage, but if you do so, you are putting yourself in debt, and pledging some of your expected future profit on the sale of the house to cover that debt. Taking out a loan doesn't make you any richer, even if your credit rating has improved.

Still, if you felt like levying capital gains tax on remortgages, that would be a considerably more logical policy than a "mansion tax", whose only merit is that is makes a good soundbyte.

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