Home—Blog—Which is the mansion?
Nov 19, 2012, 11:00
Posted byMerryn Somerset Webb
Comments (44)
Here’s a new party game for you. Let’s call it 'Spot the Mansion'. You open the links below and look at the houses. Then (trying please not to look at the sales prices), you guess which the Lib Dems think is a mansion and which they think is an ordinary person's house.
• Property one• Property two• Property three• Property four• Property five• Property six• Property seven• Property eight• Property nine• Property ten
As you have probably guessed by now, all the odd numbers are mansions and all the even numbers are not mansions (ie, the nice houses in which you might aspire to live, but are so expensive to keep up that you have to be rich to own them). It makes the idea of a mansion tax seem a bit silly, doesn’t it?
That’s particularly the case if you marry the idea of taxing apparently high-end property with whopping rises in stamp duty, as today’s papers suggest is about to happen again with the data emerging from the London market at the moment.
In the third quarter of this year, transactions fell by 9% in prime central London to a mere 5,226. But look at Greater London, and in particular at the £2m-£5m sector, and you can see just how the effects of the new tax legislation are beginning to bite (these put stamp duty up to 7% for people and 15% for companies on property valued at over £2m). Transactions are down 53%.
Yes, you read that right. 53%. Regular readers will know that we aren’t against changes to the property tax regime - we’d swap the lot for a location tax or for a capital gains charge on first homes. But we can’t really see the good in going about it like this.
Stamp duty is a terrible tax for all the reasons I mention here, but the main problem with it is the way in which it freezes transactions and cripples labour mobility. We need less of it, not more of it. PS - I can’t write it all again, so as the whole idea of a wealth tax on property won’t go away, here is my last blog on it: A wealth tax on the value of property is a bad idea. And the one before that: Will the wealth tax never die?
Published in Blog More articles by Merryn Somerset Webb
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(19 November 2012, 11:47AM) Complain about this comment
"It makes the idea of a mansion tax seem a bit silly, doesn’t it?"Sorry, but I fail to see the logic in this statement.Council tax bands are set by market value, not the number of bedrooms, size of garden, period features, duck houses on lake or whatever.And, unsurprisingly, being in central London is considered a more valuable feature than having a large garden in the middle of mid-Wales.
(19 November 2012, 04:27PM) Complain about this comment
But Merryn, it was you who pushed the location/land tax. It is precisely the smaller high value flats that a location tax penalises. It is the big old rectory miles from anywhere, with one old lady rattling around like a pea in a drum, that escapes the worst of the location tax......as you say, because it is remote from services and the like.
(19 November 2012, 08:12PM) Complain about this comment
I'm all for the location tax. And if this was designed as that it would be different. But this is not a replacement tax. It is (if it is to happen) either a new tax or a huge rise in a very inefficient tax - all in the name, not of increased tax efficiency/pricing location value - but attacking the "rich." Which is a different thing altogether...
(19 November 2012, 09:31PM) Complain about this comment
#3 Merryn. That is where we differ.What i see as asking the rich to pay a fair share you see as 2attacking" them. I suppose removing Child/Housing Benefit is not attacking the poor just asking them to cope with less. 64% of homes over £1million were bought by foreigners in 2011,so I guess we are attacking the foreign rich........you know, the ones who force the costs up for everyone else.
(19 November 2012, 10:46PM) Complain about this comment
I dont understand why the conservatives are so against a Land Value tax.The low/middle incomes are overaxed, our savings our taxed and quite low for the last 5 years.Surely it is about time that property was taxed...Ridiculous that they object to this, in times of austerity this is an income that makes sense and it would be very useful.Suspect that emigration might make them change their mind, when there will be nothing else to tax..
(19 November 2012, 11:12PM) Complain about this comment
Any tax on a house or location or land that has already been purchased post-tax pounds is deeply immoral. Also it also makes the government unpredictable, which is not good for investors.Council tax is a little different, since it's directly paying for local services (well, in theory anyway).
(20 November 2012, 09:04AM) Complain about this comment
GFL:"Any tax on a house or location or land that has already been purchased post-tax pounds is deeply immoral."If you take this approach then you must also object to paying VAT when you buy a pair of shoes with your taxed pounds, and object to paying excise duty on a bottle of whisky with your taxed pounds and object to paying stamp duty buying £2000 worth of Vodafone shares with your taxed pounds.So you get rid of all VAT, excise and other taxes and then need to double income tax. What's moral about that ? Your placing even more of the tax burden on the working population.
(20 November 2012, 09:08AM) Complain about this comment
@Merryn (3)Surely iy is just the imposition of a couple of extra bands on the existing system to take account of the fact that those in the most expensive houses have been hugely undertaxed ever since the rates were abolished.As Simon Jenkins pointed out in The Times recently back in the 80s he had friends living in "bankers mansions" in South Kensington who were paying £10,000 in rates. £10,000 in the mid 80s. Today they'd be paying £2,500 council tax.
(20 November 2012, 10:04AM) Complain about this comment
Hurray for LVT in all its guises!Whether we call it "extra council tax bands" or Domestic Rates (which they still have in Northern Ireland) or "land value tax" or "location premium charge" "Schedule A tax" or "Business Rates" or anything else is neither here nor there. Calculating the location premium is absolutely dead easy*, certainly far easier than adminstering and collecting all the current taxes, we're talking five or ten pounds per home per year to keep values updated. Stamp Duty Land Tax, capital gains tax and Inheritance tax are of course very bad taxes, the fact that they are tangentially related to selling prices of land and buildings is neither here nor there.* http://markwadsworth.blogspot.co.uk/2012/10/the-army-of-surveyor.html
(20 November 2012, 10:18AM) Complain about this comment
Capital gains tax on first homes would surely do more to paralyse the market than anything else going wouldn't it? People would never dare move.At least with this, you truly know what qualifies as a "mansion" before you make the purchase.Far fairer to raise some tax by equalising a glaring inequality in the housing market - the lack of VAT on new builds as opposed to the huge amount of VAT in doing up older properties. The lobby groups won't like it though, will they?
(20 November 2012, 10:43AM) Complain about this comment
GFL: "Council tax is a little different, since it's directly paying for local services (well, in theory anyway)."Here we go again. Land Value Tax is a charge for the value of local services, whoever provides them and however they arise, and is also a charge on the burden which any landowners places on 'everybody else'. If there were limitless land at equally good locations, then the rental value would be zero, it is only because there is a shortage thereof, i.e. that some people can be excluded from enjoying these local services, that rental values arise; rental values are a measure of the burden placed on others just as much as a measure of the benefits received by landowners.
(20 November 2012, 10:44AM) Complain about this comment
Surely the fairest way to enforce this is to make foreign investors and people with more than 1 home, pay the higher band of stamp duty?
(20 November 2012, 11:17AM) Complain about this comment
Chris, no SDLT is a bad tax.Interestingly, there is a £30,000 a year "non-dom" charge for each UK resident who doesn't want to pay tax on his overseas income. We can scrap that and tax their homes instead, they'll not care either way and be perfectly happy to pay up.
(20 November 2012, 11:29AM) Complain about this comment
Alan:"Capital gains tax on first homes would surely do more to paralyse the market than anything else going wouldn't it? People would never dare move."That's certainly true if CGT was introduced today and no allowance was made for capital appreciation over the last 50 years.However if you started from today as Year Zero and only taxed gains made subsequently then it could work.You could allow an indexation charge, so that people aren't being taxed on general inflation.And it would act as a brake on house price inflation, which is surely a good thing. Allowing more equity to be invested in income producing assets and being "fairer" in making it easier for youngsters to buy property.Germany seems to have done pretty well over last few decades without seeing rampant house price inflation.
(20 November 2012, 12:14PM) Complain about this comment
Shinsei1967, don't let them sidetrack you with waffle about CGT (a bad tax). Proper LVT is a charge on the ongoing benefits which landowners get from owning land. The capital gain they earn is a bonus but not a feature of the system, and even if land prices were kept stable (by rigidly regulating mortgages and interest rates etc) so that capital gains never arose, the landowner would still be getting benefits throughout the period of ownership.
(20 November 2012, 12:51PM) Complain about this comment
Nearly there Merryn. But please stop confounding Land Value Tax and Property Taxes of one sort or another (here CGT on first homes). They are completely different beasts. Property taxes combine LVT with taxes on improvements, thus eroding some of the beneficial features of LVT. Taxes on improvements help to keep the building stock in disrepair. With LVT you tax the unearned component of property prices only so are not discouraging socially beneficial activity. Have yourself a read of Henry George ... or Fred Harrison!
(20 November 2012, 12:57PM) Complain about this comment
No 7 - Shinsei1967No, there is a big difference between taxing existing assets and new assets. This sets a bad precedence, million pound houses today; tomorrow it could easily be less expensive houses. Also who is to say they will stop at property?
(20 November 2012, 02:19PM) Complain about this comment
Higher council tax will mainly result in lower rents and selling prices as seen with higher business rates. So the ONLY people who will be affected are who own £1m+ houses, who are a very small minority and have gotten all sorts of free money from the government, e.g. £27k if you're near a government provided tube station, £34k if you're in the catchment area for a good government provided school. So if someone wants to buy or rent a £1m+ home, they will pay less rent or mortgage and those who own these houses can give a small fraction of the unearned wealth that they have gotten at the expense of everyone else.
(20 November 2012, 02:20PM) Complain about this comment
GFL, the use of the word "property" to mean "land and buildings" is Home-Owner-Ist DoubleThink. That is merely one kind of property, which actually includes everything, your labour, your CD collection, cash in the bank, shares in a business etc. All these things are of course far too heavily taxed, so for you to now claim that "If we taxed the rental value of land we'd also have to tax your labour, your CD collection etc" is an absolutely outrageous bit of propaganda - the point is to REDUCE taxes on all the other kinds of property.Can you not understand the huge difference between "the rental value of land" and "earned income" or "a CD collection"?
(20 November 2012, 07:06PM) Complain about this comment
#shinsei67, your example of Germany isn't a good one because even Germany waives all CGT if you own your house more than 10 years. I guess that's one way of stopping speculative short-term house trading, but I've looked around in Germany before and decent houses are anything but cheap - I suppose Germans end up living in one house for a lifetime - CGT is a very abused property tax anyway as it strongly discourages selling property. I much prefer the VAT equalisation as a starter and then move on from there.
(21 November 2012, 06:25AM) Complain about this comment
the problem here is that this mansion tax is setting an arbitrary bar at 1million, and then arbitrarily assumes that the occupier of said house has a certain cashflow.This is the logical deduction of a child Would it be so hard to add a little more detail:Houses in England worth over 1 million AND with the occupiers earning over XXX get charged thisHouses in London worth over 2 million AND the occupiers earning over XXX get charged this.Boom. You have a basic appreciation for nationwide price differences, and more importantly, you have some means testing, so that pensioners who suddenly wake up in their W2 house they bought 50 years ago to find it worth XXXXXXX dont get punished for have done absolutely nothing.
(21 November 2012, 07:09AM) Complain about this comment
Cashflow should be the primary markerproperty taxes by themselves are blunt tools with predictable effects: CGT affects the activity of property development and investment. setting it high it promotes a statis quo, no change, as people are both discouraged to develop, invest, or move house stampduty can precisely target the volume of property transactions in a certain price range, either depress or encourageLVT seems to focus on very subjective concepts of the "potential" value of land: "valuations would be based on market evidence, in accordance with the optimum use of the land within the planning regulations" . This then becomes a casino, with outcomes depending on what definition of "optimum" is employed at any given time.
(21 November 2012, 10:13AM) Complain about this comment
Domestic property taxes are obviously not the best way to obtain money for the State simply because logic goes out of the window with peoples' homes. A business would logically reduce cost and relocate to smaller premises but homeowners do not. A location tax is unnecessary simply because location is fully reflected in market value and therefore if council tax and stamp duty are correctly updated with additional bands/rates there is no need for it. As now, councils could have discretion to offer a discount / relief in certain circumstances. Perhaps there is a bizarre preference to live in a world where you can never have enough forms of taxes. In many instances we already have a relatively predictable and low cost-yield taxation system - we just need to improve its 'equity'; a difficult task when people cannot agree on what fair and reasonable means.
(21 November 2012, 10:45AM) Complain about this comment
Palgone, nope. Yet another straw man argument.LVT (like Business Rates) would be based on "optimum PERMITTED use" and by and large, 99% of land in developed areas is already being put to its optimum permitted use, so in practice it would be on ACTUAL use.
As to "cashflows", this is just a variant of The Poor Widow Bogey. Yes, we can measure income and profits with a reasonable degree of accuracy, but that is no excuse for levying destructive and damaging taxes on them, which are bereft of any moral justification. LVT is a tax on the enjoyment value (or a tax on the burden which each landowner places on others by forcing them to use less desirable locations), a landowner has a choice, to enjoy the benefits himself and pay the tax himself (the same as a tenant); to recoup the tax by renting out his land (and keeping the bricks and mortar element of the rent) or to sell up to somebody who is prepared to pay it (and pocketing the cash value of the bricks and mortar).However high the tax is as a % of the bare site rental value or location premium, there will always be somebody willing to pay it.
(21 November 2012, 11:57AM) Complain about this comment
Palgone: the problem here is that this mansion tax is setting an arbitrary bar at 1million, and then arbitrarily assumes that the occupier of said house has a certain cashflow.There is no such "assumption", you are applying the "logic of a child". The LVT system is based on the absolute 100% certainty that a potential tenant would be willing to pay a rent sufficient to cover the LVT plus landlord's running costs; or that a potential purchaser would be willing to pay for the cost/value of bricks and mortar and pay the LVT himself.The fact that the current occupant might not have the other income to pay the LVT is nigh on irrelevant.
(21 November 2012, 12:37PM) Complain about this comment
@Mark WadsworthI can see the logic of land tax to replace all others i.e. to discourage the seeking of economic rent in favour of productive efforts.The only flaw that I can see however is that the government is itself a rent seeker, larger and more powerful than any single land owner.
(21 November 2012, 12:43PM) Complain about this comment
AH, for sure, but at least people will be painfully aware of how much LVT they are paying (unlike all the stealth taxes on output, income and employment), and they can look up the Public Sector Finances Databank and will see one large figure for "LVT receipts", all that community-generated land value is on the table, so to speak.
(21 November 2012, 12:44PM) Complain about this comment
... and then we can have a good old fashioned democratic punch-up as to how to spend it - predistribute as Citizen's Dividend (or universal LVT rebates), on warfare, on solar subsidies, long term care for the elderly, badger rescue sanctuaries, whatever. If the politicians spend it all on luxury cars, big cigars and champagne, well, at least we can vote them out. We currently can't vote out the bankers and landowners, just because they collect that rent and spend it on luxury cars etc.
(21 November 2012, 05:10PM) Complain about this comment
I still remain absolutely baffled as to why taxing someone based on the property they live in, which may or may not have a direct relationship to ability to pay, is a 'better tax' than doing so on the income they earn, which definitely does have a direct relationship to ability to pay.It fundamentally fails the fairness test and I don't know how on earth you would manage to implement it in a nation with a property market and economy as grotesquely skewed as Britain.Is it to try force all but the wealthy up North?To make it fairer would be also scrap IHT, stamp duty, and other geographically punitive taxation including shuffling council tax about?Mind you at least LVT proponents have an argument to put, unlike the senselessness of George Osborne's moronic repetition of Gordon Brown's stamp duty ramping.
(22 November 2012, 10:39AM) Complain about this comment
Simon: "I still remain absolutely baffled as to why taxing someone based on the property they live in, which may or may not have a direct relationship to ability to pay, is a 'better tax' than doing so on the income they earn, which definitely does have a direct relationship to ability to pay."We can rule out income tax etc, poll tax is a nonsense, which leaves us with LVT, which is a charge for the benefits a landowner receives from "the community". In the absence of a viable economy, stable government, law abiding population, public investment in infrastructure etc, rental values would be £nil.Or have you tried buying up and renting out land in Afghanistan or Somalia? I've heard that Gaza land prices took a dip last week.As to "ability to pay", I have dealt with that at length above, see e.g. 27.
(22 November 2012, 10:42AM) Complain about this comment
Simon: To make it fairer would be also scrap IHT, stamp duty, and other geographically punitive taxation including shuffling council tax about?Yes of course.Let's also scrap CGT, the TV licence fee and Insurance Premium Tax while we're at it. To replace all these would require an annual tax of about 1% of current selling prices, or about 20% of the current annual site-only rental value aka LVT aka "Location Premium Charge".From there on, we just keep phasing out other taxes and hiking the LVT rate towards 100% of annual rental values.
(22 November 2012, 04:47PM) Complain about this comment
It is journalists who christened this a mansion tax. The government only ever refer to it as a levy on £1million+ properties ,which can indeed amount to no more than a decent two bed flat.
(24 November 2012, 02:54PM) Complain about this comment
Shift taxation from the efforts of those who get up in the morning to work (particulary the low and middle incomes) onto those who do not (property speculators, land banks, those in receipt of benefits above the minimum wage equivalent). Eliminate taxes on incomes below £100k, put emphasis on consumption taxes, tax those above £100k modestly at 15-20%. Property speculation is the problem, the banks merely responded to it (wrongly!)
(24 November 2012, 05:27PM) Complain about this comment
#35 How utterly ridiculous.To do this would require VAT at 60%.
(24 November 2012, 07:42PM) Complain about this comment
The 'mansion' tax is unfair because it is taxing a non-income producing property which may have increased enormously in value whilst you have lived there, even though you may not have a high income. I suppose the hard-hearted would say you can always sell and move to something more modest - but is n't this rather draconian and heartless for an OAP on a modest pension who might have lived in the property for 50 years? And this will mainly affect houses in London and the south-east, who have no control over price rises caused by the influx of foreign money. However I have no problem with stamp duty, as it is factored in when buying, and could have the desirable effect of returning property prices to a more sensible level, unpopular for those it puts into negative equity, but a plus for those trying to get onto the housing ladder.
(24 November 2012, 08:42PM) Complain about this comment
A Land Value Tax, under its traditional name of Site Value Rating, has a noble pedigree.Adam Smith wrote in 1776, "The Wealth of Nations", Book V, Chapter 2, Article I: Taxes upon the Rent of Houses. "Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground."
And in more modern times:“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all while the landlord sits still… To not one of those improvements does the land monopolist contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.” (Winston Churchill, 1909)
(25 November 2012, 07:04PM) Complain about this comment
@ 4caster spot on.Abolish Council Tax and simply bring in a property tax of 1% of the property value pa [as per Land Registry Info]Simple to collect.Can't Pay Won't Pay Brigade. No problem place a charge on the property, and next time it is sold the Property Tax is paid.OAP's etc who are unable to pay out of Income, same answer as the Can't Pay etc.Plus there is no need to pay Council Tax benefits for low earners.Also the Land Lord picks up the tab on mt properties they own, due to being unable to let due to excessive rents. This in turn encourage the Landlord to reduce the rent, thus reducing Housing Benefit payments.Bring it on, lets get back to basics
(27 November 2012, 06:06PM) Complain about this comment
Perhaps Moneyweek could tell us what Merryn is doing. Holiday? Baby? Three articles in 30 days starts to look like she doesn't really care.
(27 November 2012, 06:50PM) Complain about this comment
It would help to understand the tax system. It is individual consumers that support the entire hierarchy of commerce. The ultimate buyer at the end of the supply chain, bears the direct tax, VAT, and an accumulated proportion of costs related to taxes incurred in supply, payroll taxes, etc., relevant to the product or service. Workers' real income is then money that can be spent and it is that money which contributes the tax when it is spent. Our complex tax system is simply a charade, in that voters have no real perspective on what they earn or the tax that they pay. With the same disposable incomes, a single higher rate of VAT could obtain the same tax take, but voters might consider that much of the tax money might be better spent by themselves, especially as the equivalent VAT rate would have to be about 100%. So in reality, half of our spending is diverted to spending determined by bureaucrats and politicians, not necessarily efficiently or to our advantage.
(30 November 2012, 01:38PM) Complain about this comment
I have not read all the comments above so this may have been covered.Surely a mansion tax is unfair as it is the only(?) tax due without an exchange of funds or a choice e.g. VAT is payable if you choose to buy a new computer, electric gadget. Airport tax is due if you choose to fly. Stamp duty is payable after the exchange of funds and can be factored in by purchasers.Where does the tax payable be found from someone with a low income stream? Sell a chimney pot?
(07 December 2012, 06:30PM) Complain about this comment
Which is a high income? If you don't have to pay rent or a mortgage, you can afford to pay a whole lot more tax than someone who does.
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