If implemented, the Labour Party's proposed Mansion Tax will have various unintended consequences
for homeowners and the housing market in general. Cash poor owners of single homes which have risen
in value over the recent years would be unfairly burdened by the annual fee. Also, the tax would
disproportionately target London and the South East, the two English regions which have seen the
greatest house price increases recently and which already account for a substantial amount of collected
property taxes. The magnitude of the tax and its proposed structure are also likely to lead to market
distortions such as price clustering. All of these concerns come on top of the fact that, due to the
potentially devastating impact on prime property prices and the number of transactions, the measure is
unlikely to raise its £1.2 billion target.
Still as the proposed Mansion Tax enjoys vast support from the electorate, much political will exists to
implement the measure. This report provides an alternative set of reforms which will raise more revenue
and carry a similar sentiment likely to gain much public support. The alternative measures we have
explored avoid a number of the negative consequences of Mansion Tax, such as targeting asset rich but
cash poor households.
Additionally, the taxation reforms proposed in this report create a desirable set of incentives for
homeowners and homebuyers in the UK. Owners of multiple properties would be motivated to keep
their properties occupied. Non-resident buyers of investment properties who do not fulfil their social
obligation to the community by residing in it would contribute via higher stamp duty. Perverse incentives
which encourage landlords to underinvest in repair work would also be removed.
© Centre for Economics and Business Research for the FairHomeTax Campaign Feb 2015 commissioned by Howard Cox