At first glance, few will be worried about Labour leader Ed Miliband’s proposed new mansion tax. Most of us don’t live in a mansion, so what’s the problem?
But ordinary homeowners should be worried, especially if they live in London and the South East, or any UK property hotspot for that matter. Because eventually, the mansion tax could be coming for them.
Vote For Me!
This may seem a ridiculous thing to say, given that Labour is only planning to impose the mansion tax on properties worth more than £2 million, if it wins the election next May.
That means just 100,000 of the 27.8 million homes in the country.
Since the tax will be shouldered by a handful of wealthy people, who everybody seems to hate these days, and the money raised will fund the NHS, which everybody loves, it looks a vote winner.
It may not be so popular in future.
Tax Creep
Taxes have an ugly habit of spreading their tentacles far beyond their original reach.
When the UK first introduced income tax in 1798 to pay for the Napoleonic wars, it was set at the laughably low rate of 2p in the pound (they weren’t laughing at the time). Today, it can hit 45p.
It’s a similar story with stamp duty, the tax you pay when you buy a home.
When the new thresholds were introduced in 1997 (£250k and £500k), just 17% of home movers paid them, according to figures from Lloyds Bank. This year, 83% of us will pay, rising to 99% in London.
If the interim governments had lifted the £250k threshold in line with house prices, this would have increased to an incredible £645,000.
You can be sure the mansion tax won’t rise in line with prices, either.
Bad Tax, Good Politics
This might be acceptable if the mansion tax was a good way of raising money, but it isn’t.
All those high-end properties will have to be valued. This will be expensive, especially since house prices keep fluctuating. It will require an army of inspectors.
The mansion tax is also likely to knock house prices, especially around the £2 million mark, which means it will raise less money than Ed Miliband hopes. He may be forced to lower the threshold to make up the shortfall.
There has already been talk of setting it at £1 million. In parts of London that would barely buy you a lock-up garage, let alone a mansion.
The tax would also be easy to evade. Simply divide a house in two, and call it separate flats.
Many people in their 70s or 80s who have lived in the same house for the decade and have little income will struggle to afford the estimated £12,000 a year this tax will cost.
It’s not their fault London property prices have spiralled.
My Home Is My Mansion
Tax high-end property to fund the NHS by all means. But do it properly, by reforming the creaky and antiquated council tax system, which lets multi-million pound properties off lightly.
But this isn’t about the NHS at all. Ed Miliband and Ed Balls calculate that the mansion tax will secure votes from the ‘bash the rich’ sector of the electorate, and don’t care how unworkable it is in practice.
History tells us what will happen next. Just like stamp duty, the mansion tax won’t just be a tax on the rich. Every year, tens of thousands more ordinary people could end up paying it.
One day, maybe even you.