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There are not many people who think that the taxation of residential properties in the UK is done either justly or efficiently. To be fair, it has to be based on valuations which are kept reasonably up to date but there has been no revaluation carried out since 1991 — the baseline for when the current residential tax system was introduced in 1993. To be efficient in terms of fairness, there needs to be, if not a progressive element to the system, at the very least a way of avoiding it being heavily regressive. By a long margin, the present arrangements fail this test. The bands for collecting council tax stop at Band H, which leaves all properties worth over £320,000 in 1991 paying the same amount. A band H property in Westminster this year pays £1,353. The London average is about £3,000. This is clearly unfair.

Taxing residential properties, however, if done efficiently and fairly, does have substantial merits. Collection is relatively cheap. Collection rates are high. There is  some sort of correlation between the value of the houses and flats in which people live and their income and assets. As there has long been a tradition in the UK that residential taxes are a major contributor to the cost of local services, there is a strong link between what people pay and what they receive in return. All these factors cry out for reforms to the system. We need current valuations; we need extended bands beyond H; and we need to ensure that harshness is avoided by reducing the payments due from those who really cannot afford to pay — especially those who live in properties which have risen enormously in relation to their incomes — to make the system generally acceptable. No one likes paying taxes but the money to pay for public services has to come from somewhere.

Why, then, with a tried and tested way of taxing residential properties in place have proposals for a mansion tax surfaced? This is essentially a way of raising significant sums of money only from those with very high-value residences, usually with £2 million being the cut-off point, while leaving the existing council tax system where it is. The advantages are not hard to see. There are not that many properties worth £2m or more, so the electoral damage from introducing this new tax would not be that great. A high proportion of those with properties worth more than £2m are not voters in UK elections. And no doubt for many people soaking the rich via a mansion tax has an appeal of its own. Why then have many people who support the idea of local property taxation and who believe that more expensive properties should pay a higher amount come out against the mansion tax? The answer is partly on issues of principle but much more on questions of practicality. 

First, who is to get the money? The proposals floated so far suggest that all the proceeds of the mansion tax should go not to local government, though this badly needs extra funding, but to the centre, possibly to finance increased spending on the NHS. Is further centralisation and less autonomy for local authorities really the direction most people want to go? Probably not.

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Neil Wraith
October 29th, 2014
1:10 PM
WHY LABOUR’S RIDICULOUS MANSION TAX IS ONE OF THE WORST IDEAS IN POLITICAL HISTORY: LABOUR'S MANSION TAX IS AN ECONOMIC FALLACY: 1) It won’t raise £1.2 Billion of net profit. Labour have mistakenly done their calculations as if the Mansion Tax will be operating within a vacuum. The £1.2 billion is in fact the estimated GROSS PROFIT. The NET PROFIT will be much less due to the following resultant revenue losses: A) The number of £2m+ properties will reduce because they will: i) Be undersold at £1,999,999 ii) Be split up into multiple less-than-£2m properties iii) Be divided into multi-tenure leasehold / freehold titles with each component worth less than £2m iv) Become shared ownership, with different family members owning different parts of the property, with each share worth less than £2m B) The admin costs associated with operating the Mansion Tax C) The huge loss of revenue due to leakage of Stamp Duty, Capital Gains Tax and Inheritance Tax 2) £1.2 billion is not enough to make much difference to the NHS. Last year’s NHS bill was £95 billion and the shortfall £30 billion ******************************************** LABOUR'S MANSION TAX IS POORLY TARGETED AND INHERENTLY UNFAIR: It’ll affect too many of the wrong people and not enough of the super-rich, for all the following reasons: 1) 96% of all properties affected are in London & Southeast. It’s a tax that focuses specifically on these areas, as opposed to equally across the whole of the UK; and is thereby discriminatory. 2) The majority of properties affected are not in fact ‘mansions’ at all. 3/4 of the properties affected in London are either flats (38%) or terraced houses (36%) 3) Most people living in a £2m+ property have already paid more than their fair share of taxes. They’ve already paid potentially over 70% of their family’s hard-earned income as INCOME TAX, STAMP DUTY TAX and INHERITANCE TAX. And then there’s also VAT and possibly CAPITAL GAINS TAX too! Not to mention COUNCIL TAX. That’s 6 taxes already! Someone’s net worth may be £2m, but if they and their family earned £6.7m and have ALREADY PAID TOTAL £4.7M IN TAXES leaving only 30% left, they’ve already paid more than their fair share. 4) Many people living in £2m+ homes are cash-poor asset-rich. They may be comparatively rich, but they are NOT the super-rich. Labour’s proposed fudge of allowing such people to defer payment of the Mansion Tax (as opposed to being exempt) is akin to a huge addition to STAMP DUTY TAX and IHT, both of which are already highly taxed. If they can’t afford to pay the tax then they’re clearly NOT the ‘super-rich’ and so shouldn’t have to pay it at all! 5) It fails to take MORTGAGES into account. Someone who owns a £2.5m property with £700K mortgage and £1.8m net equity will not only have to pay the tax, but also pay the same amount as someone who owns a £2.5m property outright. 6) There will be far too many innocent casualties. For example: A family I know purchased a house for £2m+ and spent a huge sum converting the house to be disabled-friendly for their paraplegic daughter. They will have to sell the house making a huge loss, as the disability modifications do not add value to the house; and as a result they they will have to sack the daughter’s carer and won’t be able to pay her future hospital bills. 7) MIDDLE INCOME families will be affected. Middle-class families who are living in a property valued at £2m+ will have to pay Labour’s Mansion Tax if they earn as little as £42,000 GROSS ANNUAL INCOME or more. The majority of these individuals and families have mortgages on their properties and have to work hard to be able to pay their bills. They are by no means the ‘super rich’ and quite simply will not be able to afford to pay the Mansion Tax. 8) Too many of the ‘super rich’ won’t be affected. Wealth tax should not be selective and only target properties. It’s unfair to tax only those who have (wisely) chosen to invest their wealth in property and not others who’ve invested theirs in other assets. For example: A) A guy I know is worth £485m. Aside from his huge annual income, he owns a property valued at £1.9m, plus a fleet of luxury sports cars worth £20m, a private jet worth £8m, a helicopter worth £2.1 million, and paintings worth £20m; with a combined total asset value of £52 million (which by no means is the extent of his assets); and yet he will not be liable to pay anything extra whatsoever. Whereas, someone who owns a single property valued at £2m+ would. B) Someone who owns 100 properties each valued at £1m, totalling £100 million, would not be liable to pay any additional tax whatsoever. Whereas, someone who owns a single property valued at £2m+ would. **************************************************************** IT'S NOT JUST THE 'SUPER RICH' BUT THE AVERAGE PERSON WHO WILL BE AFFECTED IF THE MANSION TAX IS IMPOSED. Why? For the following reasons: 1) It’s so unfair that the 'super rich' won’t tolerate being forced to pay it and will avoid paying via many plausible avoidance methods. Many of the ‘super rich’ will cash in and move their wealth and likely their businesses and themselves too out of the UK. This will result in the country's economy taking a consequential nose-dive and a huge loss of revenue for the Treasury. Taxes affecting the average person will have to be substantially increased; AND due to that, so will public spending be significantly cut, which will inevitably mean a curb on benefits. 2) When INHERITANCE TAX was originally introduced it was promised that it would affect only the rich, but now even the average person has to pay it; and so will the very same thing inevitably happen with respect to the Mansion Tax. The net is already wider and will encompass far more people than people realize; and it will indubitably get wider still, exactly as happened with INHERITANCE TAX which. Don’t be so naïve to think Labour’s ludicrous mansion tax will not affect you! It will. It’s just a matter of time. **************************************************************** And this is just the tip of the iceberg regards why Labour's mansion tax is a terrible idea! The bottom line is that it will be predominantly MIDDLE-INCOME FAMILIES and INNOCENT VICTIMS who get clobbered by the Mansion Tax, while far too many of the super-rich get off scot-free. IMO what's really needed here is to scrap the ludicrous Mansion Tax and both clamp down and close loop-holes regards tax avoidance by the super-rich, and carry out a much needed and long overdue comprehensive review of the COUNCIL TAX system. Rant over! ;-D

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