Smell the coffee, Boris... The Mansion Tax has slipped in already

By Daily Mail Reporter

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Business secretary Vince Cable said last week's Budget reinforced the economic recovery with practical measures to help savers, business investment, manufacturers and young people starting an apprenticeship

Business secretary Vince Cable said last week's Budget reinforced the economic recovery with practical measures to help savers, business investment, manufacturers and young people starting an apprenticeship

Last week saw a successful Coalition budget. It reinforced the economic recovery with practical measures to help savers, business investment, manufacturers and young people starting an apprenticeship.

One less publicised move was a crackdown on people using high-value property to make easy capital gains from property inflation and then dodge tax, hiding behind a corporate façade.

At a time when families are desperate for housing, thousands of luxury flats sit empty in tower blocks along the Thames. The Government is stopping this abuse by charging a penal rate of stamp duty and a charge on the property value – a mansion tax.

I believe the idea of a mansion tax, a one per cent tax on the value of property in excess of £2 million (and charged only on the excess over £2 million) has a wider use in tackling the chronic unfairness in property taxation. My views are widely shared. The Labour Party has copied the Lib Dem proposal for a mansion tax and a YouGov poll last Sunday showed that considerably more Tory voters support the idea than oppose it.

Boris Johnson normally has a good nose for public opinion, which is why I am baffled that he chose to attack the proposal in this paper last week. A group of 65 very wealthy people, including Russian oligarchs and Middle Eastern millionaires have, according to The Mail on Sunday, mobilised to stop the tax. They will be delighted with the Mayor’s support but I doubt if the public will be.

The key issue is unfairness. We have a system of property tax – council tax – which was cobbled together in a hurry two decades ago to replace the hated poll tax.

It is based on property values that are now hopelessly out of date; and politicians of all parties have baulked at a revaluation, which would create a lot of losers as well as winners.

Also council tax does not distinguish between modest family houses and mansions which, these days, in London includes homes worth hundreds of millions of pounds. In my constituency of Twickenham in South West London, Band H properties, which include many traditional 1930s semis worth perhaps £750,000, pay around £3,170; but the owner of a £100 million mansion in Westminster pays about £1,350.

That is not the only unfairness. Property inflation is generating big gainers and big losers, not on the basis of hard work or enterprise but simply by virtue of where people live.

The impact of a new housing bubble would be especially severe in London and the South-East, reflecting an underlying scarcity of supply relative to demand and expectations that prices will continue to rise. The practical consequence is that young families with modest incomes are priced out of the market throughout much of the UK.

 

House prices are much higher in relation to income than in the aftermath of previous recessions. The average household income is £31,000 and the average house price is £250,000 – a multiple of eight, which no bank would dream of lending and rightly so.

At the average London house price of £400,000, it requires a family income of more than £100,000 to get a mortgage over and above the cash deposit. Most professional families, let alone manual workers, cannot contemplate that.

Mr Cable said he is baffled that Boris Johnson chose to attack the Lib Dem proposal for a mansion tax last week, after a YouGov poll revealed last week that considerably more Tory voters support the idea than oppose it

Mr Cable said he is baffled that Boris Johnson chose to attack the Lib Dem proposal for a mansion tax last week, after a YouGov poll revealed last week that considerably more Tory voters support the idea than oppose it

Large areas of London and the South-East are consequently become ghettoes for investment bankers and highly paid managers.

On the other hand, people of my generation who have paid off their mortgages are sitting on valuable assets. True, this is only paper wealth but most of us can realise it, in part, by downsizing or moving to better property in cheaper areas or use it as inheritance.

I don’t begrudge ordinary families some moderate gains in this way. But I do think it is wrong that multi-millionaires should be able to benefit from property inflation while others cannot even get on the housing ladder.

These problems cannot be solved without a big increase in housing supply for owner occupation, private and social renting and shared ownership.


'Property inflation is generating big gainers and big losers, not on the basis of hard work or enterprise but simply by virtue of where people live'

We have taken some very good measures such as allowing those areas with severe need for additional housing to increase borrowing against their assets to build new houses, we’ve made financial help available to small businesses in the building trade to increase competition in the market and encourage buyers to consider self-build, and introduced one-for-one replacement of council housing every time one is sold (since the number of council houses actually fell under Labour).

But more needs to be done. We must build many more houses. That, and only that, is the solution to our housing problems. But fairer taxation would ease the pressures.

One approach could be to introduce multiple new bands of tax on top of Band H, using the council tax system of valuation and collection. Another way of doing essentially the same thing is to take a top slice of the most valuable properties worth over £2 million. Most are in London, in fact.

The loudest protests about this proposal come from exceedingly wealthy people. They claim the tax is ‘brutally unfair’. This is mainly because of a small number of people who have property wealth but little income.

Mr Cable said a full-blown mansion tax would 'show the Coalition is fair as well as competent'

Mr Cable said a full-blown mansion tax would 'show the Coalition is fair as well as competent'

There are a few genuine cases. But this is not a new problem. It is encountered in the council tax system and under the Government’s spare room subsidy. It can be dealt with in the same way, through discretionary treatment of genuine hardship and, if necessary, by rolling up tax obligations against a future sale, as already happens with individuals and families which have large care bills.

Of course there will be some who need help but most wealthy people can help themselves: Freeing up cash by downsizing as many already do; renting out part of a large house; or using equity release.

I see that the Mayor has resorted to making up the facts. He claims the threshold is £1 million; it is £2 million and future governments could, and would, adjust for inflation. He claims that the tax on a £1 million house would be £10,000 a year. Actually it would be zero. (It would also be zero on a £2 million house). He then claims that the tax on a £2.5 million house – and how many Mail on Sunday readers live in a property of this value? – would be £25,000.

Actually one per cent of 500,000 is £5,000. I have long suspected that beneath the Mayor’s witty use of words was someone who can’t add up. He is a prime candidate for Mr Gove’s numeracy classes.

This Coalition Government has so far brought in only a limited mansion tax. Since I know many Conservatives agree with me, I have not given up hope of persuading my Cabinet colleagues to go further. We may yet get agreement to widen the mansion tax. That would demonstrate clearly that this Government is fair as well as competent.

The comments below have not been moderated.

As usual Vince Cable is being totally disingenuous here. The help to buy scheme is not fueling a property boom in London as most new builds at this price level are not in central London. The boom in properties under £2m are being fueled by the prospect of a Mansion Tax. Investors are buying multiple properties at lower levels to avoid paying the tax and thus pushing up prices and preventing first time buyers and young people getting on the ladder. The Mansions tax is having exactly the effect Cable claims it will help prevent. The sums don't add up - a £1.2b tax take on MT and huge reductions on property transaction taxes which are currently bringing in £15b will mean that the introduction of a Mansion Tax will result in a reduced tax from properties. This is cynical politics of envy designed to win votes but not actually be beneficial to anyone. In fact the unintended consequences could hit the exact people Cable claims he is trying to help.

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Politicians should also remember the argument that mansion tax will help correct hugely over-inflated property prices for those struggling to get on the property ladder is absolute nonsense. Quite the inverse is true as it's already increasing prices in the £1m-2M bracket for people nervous about being clobbered with mansion tax. What goes on in the £2m-50M bracket has been historically proven not to effect the cheaper end of the market that first time buyers are shooting at. Residential property is made up of thousands of micro markets and they regularly move independently...that's how the top end has gone so sky high in relation to the rest of the market. Anyone who says we need mansion tax to re-correct the market needs to understand it will have little or no effect on the part of the market that people want to get cheaper.

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You said the hated Poll Tax - well, the Council Tax is even more hated because it's so unfair. If you have similar properties where there is a Retired Couple residing in one and a Family of 5 in another and all those 5 are working then the Retired Couple pay just the same as the Family of 5 . Is that fair - no !

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Cable is such a disappointment when you carefully analyse his rhetoric. I thought he was the voice of reasoned intellect but he's just as out of touch as the rest of them. And as for Clegg- HIS goose is cooked.

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UKIP will get my vote. Lib Dems are history. Hard work and saving makes me a cash cow for an inefficient, wasteful government that needs to raise even more cash to waste on spurious policies.

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Why should you pay any tax at all on something you bought with money that has already been taxed ? Are you people mad ? Why does the British public simply accept being taxed literally to death at each and every opportunity ? These people are supposed to be elected to do YOUR bidding remember !

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All these people know how to do is tax and waste. A much simpler approach is to cut state spending. Close the department for business and job done. Huge influx of saved money, a building that can be rented to functioning companies for peanuts (in central London) and Vince Cable sacked from government.

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Cable has said many times that "the fairest way to tackle the defecit is for those with the broadest shoulders to pay more." Mansion tax is just politically easy revenue. It's not fair. Fair would be taxing people more on the higest incomes and the largest total gross assets. But much that's harder for Cable to do. Taxing people that happen to have the majority of their money in one residential property is anything but fair and they know it. Why not pick any other form of capital investment like equities or commercial property and randomly identify tax those for punitive taxation..would that be fair? No. So please, don't insult our intelligence by trying to tell us mansion tax is fair and right. We pay our taxes willingly and gladly to live in the UK, but being knobbled for living in the SE is not fair. It's just a quick, easy, populist wayto raise money with the minimum loss of votes. Yes that's politics, but don't they dare imply it's fair.

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This will make it the fifth time the same money is taxed by my reckoning. The first time when it is actually earned with Income Tax. The second time when it is actually spent on anything with 20% VAT. The third time when a house is bought with Stamp Duty (at 7% if it is above £2 million). The fourth time when the property is lived in with Council Tax. And now the fifth time with a Mansion Tax. And then if there is anything left a sixth time with 40% when you die as Inheritance Tax. This Mansion Tax will hit London pensioners especially hard as a lot of them will have no way of paying it. Sell their property? Yes thank you for that helpful suggestion Vince, I'm sure they will be delighted to put their property on the market to receive a rock bottom price as everyone else will be trying to do the same thing at the same time. Why should people who have always paid their taxes be forced out of their houses?

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What a country we are, that likes nothing better than bashing those who succeed. We have a mansion tax anyway - it is the council tax banding where the higher the value of your house the more CT you pay.

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