In the CPS report The Shrinking Case for a Mansion Tax, Lucian Cook – director of research at Savills estate agents – explains that reforms made to the way stamp duty is levied are but another nail in the coffin for mansion tax.
Spearheaded by shadow chancellor Ed Balls, the divisive tax would be levied on all properties worth more than £2m, as part of a bid to raise tax revenues by an extra £2.5bn a year.
Strongly criticised by many, the proposed mansion tax has been labelled obsolete following the chancellor George Osborne’s income tax style reforms to stamp duty, as well as other changes to property tax.
“The recent reforms of property taxation are raising as much from high value properties as any mansion tax,” Cook said.
The proposed mansion tax is little more than an appeal to envy
“If in addition to these reforms, a mansion tax were introduced after the next election, it would add a layer of complexity and unfairness into the tax system for residential property.”
Cook also argued that the mansion tax proposals were built on poor foundations, were crude, and would be too heavily focussed on London. Implementation would also be costly to the taxpayer and difficult to administer for HMRC.
CPS director Tim Knox attacked the mansion tax as an appeal to envy and called for simpler and lower taxes to encourage wealth creation.
Knox said, “The proposed mansion tax is little more than an appeal to envy, and should not be presented as an integral part of any coherent manifesto.
“For economic recovery, the UK does not need new taxes targeted at the aspirational, the successful and sometimes the fortunate. “Rather, it needs lower, simpler taxes which encourage innovation and productivity and which stimulate, not penalise, wealth creation.”
The CPS report comes after similar claims made by CEBR. While acknowledging support from voters, CEBR said that a mansion tax could have a negative indirect impact on revenue generated by stamp duty.
CEBR said, “A mansion tax is likely to have a significant negative impact on prices at the top end of the housing market, in London especially.
“As this disturbance in both prices and number of transactions at the high end of the market feeds through to lower value properties, revenue collected through stamp duty charges diminishes.”
Over the course of the next parliament, CEBR estimates that more than £1.9bn in stamp duty would be lost, due to homeowners’ unwillingness to pay accumulated mansion tax – an appeasement for the asset-rich cash-poor – or buy houses that would incur the levy.
CEBR also warns that a mansion tax could deter the migration of wealth into the UK, and criticised the tax’s weak link between wealth and property value.
CEBR’s report said, “A landlord that owns 10 flats valued between £1m-£1.5m each would pay nothing in mansion tax, while a homeowner in London that purchased [their] property decades ago for a modest amount becomes subject to a minimum £3,000 per annum payment.
“The link between wealth and value of owned property is not as direct as suggested by the proposed policy. Hence, the mansion tax taxes the consumption of housing, more than wealth itself.”
Mansion tax has not been wholly supported within the Labour party, with opposition from many Labour MPs in London and the south east.
Talking to economia, MP Margaret Hodge said it was “completely obvious” that a reform in property tax was needed, but said she hoped a mansion tax would be integrated into reformed council tax bands.
“It’s completely obvious and clear that we have got to reform property taxation,” Hodge said. “We haven’t had a revaluation of the property bands since 1990/1991, so any property that is worth £320,000 or more gets taxed at the same rate [as multi-million pound houses].
“I hope that the mansion tax, by the time we get to implement it in government, will reflect that and will be integrated into council tax bands.”
A spokesperson for the Labour party said, "Labour is committed to introducing a tax on high value properties over £2m as part of our plan to raise £2.5bn for a Time to Care Fund to save and transform the NHS.
"When working people are already paying more and have seen their wages fall by an average of £1600 a year since 2010 it is right to ask those who have the most to make a bigger contribution.
"It cannot be fair that the average person pays 390 times more in council tax, as a percentage of the value of their property, than the billionaire buyer of a £140 million penthouse in Hyde Park.”