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Questions for Mansion Tax supporters

    Today, the CPS released Taxing Mansions: the taxation of high-value residential property. It picks apart the arguments made by those who advocate a new wealth tax - including the ideas that it would target a few super rich and that it would raise significant amounts of revenue.

    But one common response from the advocates of this new tax is to simply state that it is 'fair' or 'the right thing to do'. Too often this line of argument goes unquestioned.

    Taking a levied wealth tax on all those in properties 'worth' over £2 million, one of our readers sent in a list of questions which I challenge Lib Dem (and Conservative) proponents of the tax to consider.

     

    1. Who is wealthier?
    A. Person with £5m house with a £4m mortgage = £1m net wealth
    or
    B. Person with £1.9m house with no mortgage = £1.9m net wealth

    Under Lib Dem plans, A would pay the tax and B wouldn't.

    2. Who is wealthier?
    A. Person owns London house £1.9m and Country House £1.9m
    or
    B. Person owns London house £3m

    Under Lib Dem plans, B would pay the tax and A wouldn't.

    3. Who is wealthier?
    A. House worth £5m, paid £2m, 10 years ago
    B. House worth £5m, paid £6m last year

    Under Lib Dem plans both would pay the tax, even though B has lost on his investment.

    4. What is wealth?
    £5m cash
    £5m shares
    £5m house

    Under Lib Dem plans, wealth is the value of your property.

    5. What happens if a £3.8m house is in 2 names (partners) as opposed to 1 name?

    Neither partner is 'wealthy' if live in houses below £2m 'benchmark but 'together' they are?

    6. What happens if the house is also a place of business eg B&B or a care home?

    Would the owners of the property have to pay the levy?

    7. What if the house is worth £0.5m - hardly a mansion - but the land is worth £4m?

    8. Why would any sane homeowner with a property value of just under £2m ever do anything to improve its value, creating a future tax liability for themselves?

    9. Equally, why wouldn't anyone with a house valued >£2m engineer a deterioration in their current house to reduce the value below the threshold?

     

    This is an ill thought-through policy which is unfair, unconservative and will have perverse incentives. Commentators continue to discuss it as if it is a straight choice between having this or the 50p income tax rate. The fact is, we don't need either. Cutting spending would allow us to fund tax cuts for all. In the build-up to the Budget, we'll be setting out how.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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    Comments

    Graham Hopgood - About 2785 days ago

    Interesting questions certainly but, speaking as one of millions of young people who will likely never own a property, they serve more to highlight the grotesque nature of today's housing market.

    Bickering whether a property has to be worth £1.9 million or £5 million to be considered "wealth"? You may as well be on another planet!

    I am a liberal democrat, and I'm supporting this policy proposal. Although personally I think a better alternative would be new council tax bands for higher values properties, allowing a more localized tax level. I agree that a centrally imposed levy will come down hardest on some, Londoners in particular (although I still find it difficult to raise too much sympathy for anyone, anywhere who lives in a property worth £2 million).

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    Rick Lindsay - About 2785 days ago

    The FibDems passionately pursuing the politics of envy. It is utterly simplistic to adhere to the belief that because a person's house is arbitrarily valued at > £ 2 million that they must have enough liquid assets to pay an annual 'Mansion' Tax.

    This is completely untrue for many, many people. Some will be in a property they have owned for nearly twenty years; in the meantime the property market has risen whilst the savings and income of the owner (s) have fallen.

    Still, as long as Vince Cable and his fellow FibDems can show their dwindling number of supporters that they are getting tough on pensioners, I'm sure they're onto a winner.

    Anonymous - About 2785 days ago

    Also, Tim, I note you have cited Adam Smith elsewhere in making your case.

    Adam Smith was consistently and unambiguously in favour of taxes on economic ground-rent i.e.the value of unimproved land. Since, as I pointed out, 75-90% of the value of a London house lies in the land, not the house, the "mansion tax" is a strong step in the right direction.

    You should be more circumspect in quoting the father of economic thought.

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    Anonymous - About 2784 days ago

    Any new tax proposal is almost bound to create anomalies. It is for supporters to the tax to decide whether these anomalies are sufficiently serious to lead them to change their mind.

    In this case, my answer is an unequivocal "No". The mansion tax has the virtue of being relatively simple as properties cannot be hidden. Whoever owns it then becomes liable for the tax. If it has joint owners they are jointly liable in the same way that they may be jointly liable for paying the mortgage.

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    Anonymous - About 2784 days ago

    In order:

    1. If A can afford a £4m mortgage, who cares?

    2. OK, combine all property, or tax all second homes.

    3. Your question can be paraphrased as "who has a more valuable house (a) A, whose house is worth £5m or (b) B, whose house is worth £5m." Tricky, but I'd say each house is worth £5m. Happy to tax capital gains on houses if that makes you feel better.

    4. All are wealth, but as you well know, you pay tax on the interest on cash, and tax on dividends on shares (and companies pay tax). You pay no tax on the benefits of living in your house.

    5. Don't understand, so will assume you have a point. (Don't really care if a couple in a £3.8m house have to pay a bit of tax.)

    6. Wouldn't/shouldn't they be paying business rates on the bit that is so used? You may have a point here.

    7. Cottage in Mayfair with a large garden? You're rich. (Your example is a bit like saying "what about people who have a mansion but don't use all of it.)

    8. What has this to do with fairness? Don't change the subject, because there may be practical arguments for the tax that aren't particularly fair (eg, you can't hide your house overseas).

    9. See above.

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    Paul Champagne - About 2783 days ago

    The problem with your very real questions is that they lead to the very real conclusion for pro mansion taxers that all net wealth in all assets should be liable to tax above some threshold for each individual. Worse, if this is traded against the abolition of the 50p tax rate it becomes highly regressive as those in the 20p and 40p brackets will get no cash benefit to pay the new wealth tax and those in the 50p bracket will find it progressively easier to find the wherewithal to pay wealth tax. Ad absurdum the wealthy with the highest incomes may wind up wealthier than they were before. Great Libdem fairness agenda!

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