There’s a huge amount of confusion surrounding the proposals for
a ‘mansion tax’ and, more generally, taxation at the top end of the housing market. Old and novel arguments are rolled out by its proponents: that it is easier to tax wealth that
can’t be taken offshore, or that the current level of taxation on high value property (generally perceived to be low) isn’t fair on first time buyers struggling to raise a deposit at
the other end of the market. In reality, there are three main reasons why a mansion tax is unwarranted and potentially counter-productive, which I discuss in more detail in a Centre for Policy Studies report released today.
1. It would unfairly penalise the income poor, equity rich. Arguments that such individuals are few and far between are flawed: our analysis shows that 31 per cent of London
properties worth over £2 million have been in the same ownership for over 10 years, 15 per cent over 20 years. Over those periods, house prices in the prime London markets have risen by 89
per cent and 426 per cent respectively. There are plenty of long-term owners sitting on an asset that has appreciated in value beyond their wildest expectations, yet who would struggle to pay an
annual levy.
2. These houses are already heavily taxed. Contrary to the political soundbites, top-end property already makes a disproportionate contribution to the overall tax take, through
stamp duty and inheritance tax in particular. Sales of properties worth over £1m accounted for 1.6 per cent of all residential transactions in 2010, yet contributed 26 per cent of the
resulting stamp duty. Similarly, the top 0.7 per cent of housing stock held at death contributes to 36 per cent of inheritance tax receipts from property.
3. It would deter international investors. An additional annual levy risks becoming a deterrent to international entrepreneurs and investors already targeted by the non-dom levy,
which itself will soon increase from £30,000 to £50,000 for some.
On top of this, the administration of a ‘mansion tax’ could be a nightmare given the difficulty in accurately valuing property at the rarefied top end of the market. There is plenty of
room for dispute, which would be both time-consuming and costly to administer and resolve.
None of which is to say that the current property taxes are perfect, but rather that there are better ways to improve them. Closing stamp duty loopholes, for example, would do a better job of boosting the Treasury’s coffers.
All of which raises the question: how much are the ‘mansion tax’ proposals driven by economics, and how much are they driven by populist politics?
Lucian Cook is a director in the resarch department at Savills.
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