THE CASE for a “mansion tax” is weaker than it looks at first glance, according to a publication thrown into the pre-Budget debate yesterday.
It would raise surprisingly little revenue at a high cost, would be unfair to people whose incomes have not risen as fast as their property values and otherwise would hit those who already contribute disproportionately to the tax take, according to a paper by the research director of property agents Savills.
The paper was published by the Centre for Policy Studies as speculation about the Budget due on March 21 warmed up.
Taxing Mansions: the taxation of high value residential property, was written by Lucian Cook, director of research for Savills.
He says: “At first sight, it does appear that the proposed Mansion Tax has some attractions. Advocates claim that it would be precisely targeted at the very wealthy; would offer less room for tax avoidance than other forms of taxation; and would raise significant sums.
“These claims are flawed. A Mansion Tax would unfairly penalise those on low incomes living in parts where property happened to have substantially increased in value during their period of ownership.
“It would be very complex to administer and collect. Accurate valuations of high-value individual properties are difficult to establish.
“There would be a high likelihood of legal dispute and calls for revaluation.”
He adds: “The UK already has by far the highest property tax take of all OECD countries, at 4.2 per cent of GDP compared to an average of 1.8 per cent.”
He also makes the point that the owners of high-value properties are already paying extra tax, in stamp duty on sales; in council tax; in inheritance tax; and through the “non dom levy” on UK property owners domiciled overseas.
A Mansion Tax set at one percent of property values over £2m would yield just £1bn (0.2 per cent of total tax revenue) at most, he says. “But the damage it could do could be far greater, particularly if it undermined the UK’s attraction to international entrepreneurs and investors.”
His figures confirm such a tax would be largely a concern for London, where 57 per cent of all sales over £1m and 71 per cent of those over £2m take place. The South East accounts for another 25 per cent and 19 per cent respectively. The comparable figures for the Yorkshire & Humber region are one per cent and 0.4 per cent.
Tim Knox, director of the Centre for Policy Studies, said yesterday: “A Mansion Tax would strike at the heart of aspiration and of property ownership. And be sure that it will, over time, spread to include more people, as politicians seek new funds for their pet projects.
“The UK does not need a new complex tax targeted at the aspirational and successful. It needs lower, simpler taxes aimed at encouraging, not penalising, wealth.”
The paper can be found at http://tinyurl.com/76bsq4g/
Such a tax has been raised since the coalition Government came to power.
Labour’s Shadow Chancellor, Ed Balls, said he wanted Chancellor George Osborne to cancel plans to cut tax credits for working parents, to cut VAT, raise the income-tax-free personal allowance and cut fuel duty.
Mr Balls believes those measures could be paid for if the Chancellor closed a loophole which allowed some people to avoid paying stamp duty when homes worth more than £1m were sold. He added: “If George Osborne can make a mansion tax work on multi-million-pound properties, fine.”
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