Home—Blog—Will the wealth tax never die?
Jan 11, 2012, 11:31
Posted byMerryn Somerset Webb
Comments (31)
The wealth tax is back. Every time I think that Vince Cable's idea to crush the rich by making them pay an extra levy on their value of their houses (maybe from £2m up, maybe from £1m up) is dead, someone writes an editorial on it, the Today programme picks up on it, and off we go again.
I have written about this here before so I won't repeat myself too much. The main points are:
• we already have a wealth tax, albeit a badly collected one (IHT); • it would difficult and expensive to collect; • it adds yet another layer of double or even triple taxation to an already unfair and complicated system; • with fiscal drag, it will be no time at all before it is not a wealth tax, but an everyman tax - just like the 40% rate.
We all know how this stuff works, so why would we agree to a wealth tax unless another tax was scrapped at the same time?
However, there is one group on which I think a mansion tax might be worth discussing: the non-resident rich.
Look around central London at night. See any lights on in the houses of Mayfair or Chelsea? No? That's because no one lives there. All too many of the very high priced houses in the centre of our capital city belong to foreigners who spend all their time somewhere else.
That comes with a cost for us: it pushes up house prices throughout the city and it makes London a much less liveable place all round (you can't form a community in London with neighbours who live in Athens and Dubai).
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But it comes at very little cost to the non-resident investors. They rarely pay stamp duty, and they pay no other taxes during their holding period other than council tax. That makes them, as an irritable friend trying to buy a house in London puts it, "effectively very cheap safety deposit boxes in a safe well regulated economy for those who make their money in less well regulated economies and who aren't in the UK often enough to make a material contribution to the domestic economy".
Put your money with a wealth manager in an effort to keep it safe and it will cost you a good 1% (plus) of the value of your assets a year. Buy a £10m house in Mayfair and your annual management fee/deposit box security fee will be the price of Westminster council tax. That's £1,376 – something of a bargain if you think of it as a management fee charged by the UK state/taxpayer to the foreign investor.
Particularly interesting in this context is the fact that, while the UK doesn't much seem to fancy taxing high value property owned by non-residents, other countries have no such qualms.
If you look at the budget passed in Italy in December, you will see that it includes a levy of 0.76% of the value of property held abroad by Italians resident in Italy, minus any similar taxes already levied in the country in which the property is held.
A good slug of central London property is owned by Italians. It seems that if we won't take taxes on non-resident-owned property in our own capital city, Italy will do it instead.
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(11 January 2012, 12:00PM) Complain about this comment
"• with fiscal drag, it will be no time at all before it is not a wealth tax, but an everyman tax - just like the 40% rate."For the benefit of those of us who don't pay 40% tax, can someone remind me at what point it kicks in? I'm under the impression that it's at something like £20,000 more than the national median wage, and 90% of employees don't earn enough to pay it. If that's the case, it's hardly an "everyman tax". Anyone who earns enough to pay it can consider themselves to be rather lucky/successful in life!I do agree with you though, that a wealth tax based on house prices would be fraught with bureaucratic challenges.
(11 January 2012, 12:23PM) Complain about this comment
This is a subject being much discussed on Twitter. You can follow me - @merrynsw - by clicking on the button above. The threshold for 40% tax is £35,000, so around £10,000 above the av wge. Last year's changes are thought to have dragged an extra 750k people into the band. But income doesn't just come from salaries so it affects more people than that suggests - probably around 4m out of a working population of 29m or so. But remember the 4m shifts thro a working lifetime. You won't pay it at the beginning of your career, you might in your 40s, you won't if you go part time in your 60s. So way more than 4m overall are affected along the way.
(11 January 2012, 12:25PM) Complain about this comment
The way Council Tax is tiered is unfair. Why someone with a house worth say £2million should pay the same tax as say a house worth £800,000 is beyond me. As for National Insurance, why should an average earner pay more NI as a proportion of their income than someone earning £60,000? Why not scrap the 50% tax rate and extend the range of National Insurance instead? As for higher tax relief on Pension contributions, what on earth is that all about?This isn't a matter of soaking the rich, it's one of fairness. Are we currently all in this together? I don't think so.
(11 January 2012, 01:45PM) Complain about this comment
@Charlesdb Council tax isn't supposed to be a tax on wealth but a tax to provide local services. Beyond a certain limit having a bigger house doesn't mean you use more roads or buses or council services. That's why it isn't structured as you suggest. You want a wealth tax not more council tax I think. The same goes for NI. It is not supposed to be an income tax - it is supposed to pay for your share of health/pensions etc. So beyond a certain point it shouldn't go higher. You want a higher income tax I think.
(11 January 2012, 01:51PM) Complain about this comment
Merryn, the £35,000 at which 40% tax becomes available sits on top of the personal tax allowance. This means that someone has to earn more than £42,475 (£7,475 + £35,000) before 40% income tax is paid. This threshold is also pushed up if money is given to charity by X/90%, where X is the amount given to charity.
(11 January 2012, 01:56PM) Complain about this comment
Fundamentally a wealth tax along with IHT punishes those people who have been careful to save and not burden the state with their living costs.............then their estate pays 40%As for Council being fair, surely the supply of services to a household is the main cost and not how much someone is prepared to buy your house for. What is less fair is that businesses pay vast sums in rates subsidising the homeowners; they are not allowed to vote for council members, and do not even received the simple service of refuse collection.As for the empty houses in Mayfair, we exported our manufacturing and wealth creation, so we only had the 'family silver' left to sell. Give a man a gun and he'll rob a bank; give a man a bank and he'll rob the world.
(11 January 2012, 03:34PM) Complain about this comment
@charlesdb + @Merryn: Houses near me literally double in value if they look over the park. Who provides that park and prevents my family building a house there? The government. The council is providing the landowner with all of this extra value. This extra value is purely unearned and the house a block away should not be paying the same council tax. After all, the council allows a house to block its view!Economically speaking, taxes on earned wealth and income are a bad idea as they discourage earning and creating wealth. Land value is unearned and immobile, so taxing it heavily will not affect people's decisions to work or invest and there is therefore no dead-weight loss. The only people who would lose out are the rentier class, who of course pay for elections...We choose to have no land tax but keep people on the dole because employer NI makes their jobs marginally unprofitable instead of profitable.
(11 January 2012, 03:39PM) Complain about this comment
@Merryn re NI not being like income tax, this is patently false. You don't need to pay NI to use the NHS and if you don't work a day in your life, you get pension tax credit, which is more than the state pension anyway. It's a fiction to make it look like the starting marginal tax rate is 20% when it is in fact 40.2% when you take employer and employee NI into account.We tax booze and fags so that people smoke and drink less. The tax code is then surely designed to make people work less.
(11 January 2012, 04:00PM) Complain about this comment
it adds yet another layer of double or even triple taxation to an already unfair and complicated system; ------------We all get double taxed. I work, pay income tax and NI (same thing actually), and then am charged VAT when I spend my money, or even duty when I spend it on alcohol.But people have got amazingly rich out of other people's efforts, or from the accumulation of debt created by deregulated finance. The first comes from taxing companies and workers and not a landowner who gets completely free of charge improvments to his land, and the second has caused misery for millions of FTBs not able to pay the outlandish asking prices for houses.So it is payback time and it's coming. and so it should, but hopefully in the form of land tax. Then we can cut taxes for wealth creation: ie cut standard rate income tax, and cut employer NI contributions - I'd aim the latter most especially at businesses that employ under-25s.
(11 January 2012, 04:05PM) Complain about this comment
@Roberto BirquetDon't forget the double tax that rent is. Most of my rent is for the nice roads, parks, buses, police, etc that make my home somewhere I want to live. I've paid income tax, VAT, etc, etc to fund these already - why am I now having to pay a private individual for services that they're not providing? Same applies to buying a house now - you're just paying for all these 3rd party services upfront.
(11 January 2012, 04:39PM) Complain about this comment
Oh dear oh dear it's the same old tired arguments, isn't it:Doing these in turn...• IHT is a stupid tax which raises very little - less than the TV licence fee, and to the extent it applies to residual unspent income, it is double taxation. LVT is not a wealth tax in any shape or form, with proper wealth taxes like income tax or IHT, there is by definition never a problem with "ability to pay", is there? Land wealth is simply not wealth, is it? • Property taxes are dirt cheap to assess and collect, see e.g. Business Rates or Council Tax. Evasion is nigh impossible.• Sure, our tax system is heinously complicated, so LVT is a golden opportunity to replace some really bad ones (like SDLT or Council Tax or IHT or the 50p tax rate, as the Lib Dems keep saying). • What's this with fiscal drag? The government has to get the money from somewhere, so if they don't have LVT or MT, then "everyman" has to pay more VAT or more NIC or something.
(11 January 2012, 04:47PM) Complain about this comment
I am in general against a land tax, as I can't see it being levied in anyway that is fair to those who through no fault of their own have ended up with massively overpriced houses that they have owned and lived in for decades in London and the South East and are only theoretically millionaires.However, imposing one on foreign owners of UK homes I can definitely support.If the world's super rich want to treat central London as their own private Disneyland, which they currently do, then they can put their hands in their pocket and pay for the benefit of pricing real Londoners out.
(11 January 2012, 05:18PM) Complain about this comment
This article is a direct reflection of Merryn's immediate circle, she needs to mix it with the plebs a little more. I say this as a fan, and not just of her appearance.Everyone pays 40% tax, do they? Hmmm.It's a big issue that Fiona can't get that house in Mayfair, is it? Hmmm.It'll be no time before most houses are worth a million pounds, will it? Hmmm - I guess this last one could happen if the BOE keep printing.Time for a visit or two to the world outside that of moneyed urbanites of London/Edinburgh, I think.
(11 January 2012, 05:34PM) Complain about this comment
I recently met a non EU person 'house sitting' in an enormous luxury Mayfair flat near the Hilton Hotel. He's working illegally, getting paid cash-in-hand by the millionaire foreign owner to deter squatters. What you can do is report these people to the UK BORDER AGENCY https://report-ukba.homeoffice.gov.uk/ It takes a couple of minutes to fill in.You'll be helping prevent what is essentially the property mafia from taking hold here.
(11 January 2012, 06:52PM) Complain about this comment
Taxation should be voluntary. Each citizen should freely determine each year how much they wish to donate to the State to fund its services. The State should not set taxes, each individual citizen should. We do not live in a true civilization. At present Government steals the wealth of its citizens with various menaces and punishments. Why do we let them do that? Because we have grown up in a society where dictatorship by the State has gone on for so long that it is accepted as normal. It is not normal. Theft with menaces is criminal behaviour whether perpetuated by a State or by individuals. In a truly free and open civilization the population would donate their surplus wealth in response to perceived need, to fund benevolent programs of their choice, run either by the State or by others. All donations would be transparently published together with the income of each citizen. Ethical pressure without coercion?The State would have to live within its means.
(11 January 2012, 09:15PM) Complain about this comment
Having a large or valuable property does not generate any income with which to pay another property tax, rather it demands a level of expenditure that increases every year.If a property tax were brought in, many would be unable to pay it, resulting in mass enforced sales of large properties/estates as happened in France after the sudden revaluation of agricultural land. The rich of course would not be paying just as they pay little or no tax on their earnings, so the whole thing would misfire.
(11 January 2012, 09:19PM) Complain about this comment
Really? What are you worried about? The tax on million pound houses is a smoke screen. It won't happen, it is just a distraction by proposing a poor method so that people criticise it and no one raises the debate of a wealth tax ever again. Read this on how a wealth tax SHOULD be introduced in PARALLEL with a reduction in income tax: http://www.rayhano.com/post/14531909143/wealth-the-missing-tax-because-it-is-fair
(11 January 2012, 09:41PM) Complain about this comment
Oh the sob stories where taxation is concerned. Life is so unfair! And as for death, don't get me started on that. Depending upon your take on religion, settlement with the taxman at our final breath should be the least of our worries. Is the State the greatest evil - stealing our wealth? Or, without a strong government would the wolves be at the door looking to steal everything we own. Our military and police protect our lives and property; the education system seeks to produce worthwhile, enlightened citizens; and the NHS system looks after one of our key needs. In total, this makes the quality of life in the UK one of the best in the world. But yes, you have to pay for it. In this world and the next.
(11 January 2012, 10:27PM) Complain about this comment
They should go ahead with Land Tax on Second+Third+Fourth properties.This way the issue there wont be any problem with owners of one house which by chance has had value of more than £1 mill.This should go ahead, since there is a need for a correction in the house market otherwise we are creating a generation gap between the old generation which most has houses etc and the young generation which is unemployed etc..Please Vince do go ahead with this tax. A good opportunity to bring down the BTL landlords.
(12 January 2012, 06:03AM) Complain about this comment
This works pretty well:https://www.postfinance.ch/en/priv/prod/info/dossier/realestate/steuern_bei_zweitdomizil.html
(12 January 2012, 08:42AM) Complain about this comment
NI is an income tax but one imposed only on employees and employers. Calling it "insurance" is a misnomer because the contribution related element of the social security benefits it pays for now barely exist. A working company director can earn £42000 a year from their little company without paying a penny of NI: a 26% saving compared to the NI costs of an employee But if they end up bust or retired they are in no worse position than the employee who is out of a job because equivalent means tested benefits will be paid by the state.NI subsides means tested benefits, but why should this burden fall where it does rather than being applied also to the self employed, company directors, property investors and those receiving investment income. If these people fall on hard times and need to claim social security they can do so pretty much to the same extent as the employee whose job has been taxed 26% for the privilege.
(12 January 2012, 08:46AM) Complain about this comment
What you are getting for all this NI is principally 6 months contribution related JSA, ESA if long term sick (which the govt now plans to restrict to one year before it too becomes means tested), and a very limited pension - with plans of the government to mess around with the state second pension.NI should be scaled back to pay for the additional benefits provided as insurance. Means tested benefits should be paid as a tax on all in society (income tax) All can benefit and should pay according to means.
(12 January 2012, 09:15AM) Complain about this comment
Merryn @4, council tax does not pay for 'local services'. typically 75% of the budget comes from central government. anyhow, should taxes be about how much you use, or how much you can afford to pay? second home owners get a discount because they use less services, but they are clearly rich enough to deny that second home from a local.
(12 January 2012, 04:45PM) Complain about this comment
Wealth tax is not hard to apply, even the French manage it. Much like an annual stamp duty on all wealth over (I think) 1 million euros. Better still is a land tax. Land is pretty much finite and can be taxed at modest rates by the hectare or even square metre. The poor tend to have little and the rich a lot. This is favoured by Nicholas Shaxson (author of the very good book on Tax Havens) and nemesis of the right Prof Danny Dorling of Sheffield Uni. Such taxes are easy to collect and assess. For info Merryn the typicvcal 40% taxpayer earns £68,000 and Council tax does NOT pay for roads and local services.
(13 January 2012, 05:41PM) Complain about this comment
Council Tax/Charge whatever is regressive for million plus proerties and it denies Council's revenue for multiple house owners crowding out local people.A Land Value tax would mean that 97% of people would see lower taxes and 3% would see higher taxes...in a real democracy what's not to love?The proceeds or some of them could be paid out equally to all UK domiciled people, think of it as a citizens dividend.Remember a Sovereign Modern Monetary Government creates money/demand by spending it and taxes merely reduce money/demand, unlike the Euro madness of effectively only having the use of what's effectively a foreign currency, rather than sovereign control of issuing/spending one's own.
(14 January 2012, 11:34AM) Complain about this comment
I worked in central London from 1957 to 1963 doing valuations for rating, initially sorting out problems arising from the 1956 revaluation and then preparing the 1963 revaluation list. The amount of unproductive effort in relation to the product, i.e. local revenue, was enormous - answering queries, negotiating settlements, court and tribunal hearings etc, frequently with very little effect on the revenue collected.The one fairly simple change would be to split Band H into at least three more bands to take account of houses with very high value.LVT sounds attractive but would be extremely difficult because of the complexities of the English legal system. The lawyers would love it.And I certainly support the idea of charging extra tax on foreign-owned empty houses in London
(14 January 2012, 08:31PM) Complain about this comment
Tax the non-resident property owners? Not all of us are trying to make an easy quid. My husband and I are non-resident and own a house in the UK. But it's not a "safety deposit box". We let it rent-free to my husband's mum and dad, who are unable to afford a decent house of their own in their old age. We could make much better investments elsewhere, but there is no price on their quality of life.
(15 January 2012, 09:00AM) Complain about this comment
The interesting aspect of these comments is the lack of agreement on what a property tax is meant to achieve. If it is a tax on wealth (or freedom as Hayek would have said) then just tax wealth rather than arbitrarily selecting one asset class. If its a payment for use of services then it should be related to the amount of use, which will be closely correlated to the number of individuals living in the property. If it is a tax on amenity then the market value of the property is probably the best measurement rather than the number of rooms, bathrooms, windows, fireplaces or view. If it is social engineering we want to achieve then maybe forcible repatriation of benefits claimants and pensioners to the North would be more effective in freeing up property in the London for people who want to buy at reasonable cost. After all they can live better on fixed benefits in the North than the more expensive South East.
(15 January 2012, 09:07AM) Complain about this comment
...... (continued)If it is a desire to make Jonny Foreigner pay his dues then the loopholes that allow them to buy and sell property without paying tax needs to be tightened up since very few of these high value transactions attract tax. Muddled thinking creates muddled solutions
(16 January 2012, 04:58PM) Complain about this comment
NG2A Land Value tax would mean that 97% of people would see lower taxes and 3% would see higher taxes...in a real democracy what's not to love?----------------Indeed, but also LVT is more economically efficient. By taxing idle land, there is less need to tax wealth creating employment and/or entrepreneurship.People pay less tax, and taxation does not hit wealth creation.What's not to love?Dr RMr Hayek forgets to mention that this "freedom" is not so open to all, unless you are so innocent as to believe there is an equal freedom (opportunity) to become so free (rich).
(19 January 2012, 10:58AM) Complain about this comment
There were four 'points' noted against a wealth tax. Each point is vacuous, being only a statement about bureaucratic ineptitude. There are no arguments here. You humans surely can do better.
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