According to reports in the press this weekend, Vince Cable is once again pushing hard for the introduction of a ‘mansion tax’.
The tax would apply to homes with values in excess of £2m, with a tax of 1% on the value over this level.
Whilst the Liberal Democrats are keen to see this wealth tax introduced, and claim to have the support of some Conservative MPs, it is understood that senior Tories including George Osborne are opposed to the introduction of a mansion tax.
Leaving aside the ideology of taxing wealth rather than income, would a mansion tax be right for the UK?
If applied in addition to council tax, it could result in an additional £1.7bn a year being raised for the public finances. The Institute for Fiscal Studies estimate there are between 30,000 and 40,000 properties in Britain valued in excess of £2m.
If introduced, the tax would apply to the value of a property in excess of £2m, so the owners of a property valued at £2.5m would be liable for a mansion tax of £5,000 a year.
It is likely that the focus of such a tax would be on the owners of property in London and the South East, where the largest concentration of high value properties can be found. Agreeing on a common valuation methodology for property would be a challenge as would agreeing on whether inflationary increases in value should be taxed.
In our experience, the owners of properties valued in excess of £2m tend to own them as a result of years of hard work. It seems unfair to subject the owners of such properties to tax on their wealth when they have already paid tax on their incomes.
Where we can see a meaningful application of a mansion tax is for foreign owners of high value UK property who have not historically contributed to the UK Treasury through income tax.
It will be interesting to see how this call for a mansion tax develops over the next few months.
We feel it is unlikely to be included in the Budget on 21st March but it could be used by the Liberal Democrats as leverage to get one of their other proposals introduced, such as an increase in the tax-free income allowance to £12,000 from the £10,000 originally agreed by the coalition.
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