Proposals for a "Mansion Tax” claim that it would be a targeted and efficient tax that would be paid only by the very wealthy, and that high value residential property makes an unfairly modest contribution to tax receipts. These claims are flawed. A Mansion Tax would not take account of an individual’s ability to pay that tax. It would penalise those on low incomes living in parts of Britain where property happened to have substantially increased in value during the property boom or, in the case of elderly owners, during their period of ownership. It would be very complex to administer and collect. Accurate valuations of high value individual properties (which are by definition illiquid) are difficult to establish as:
- there is little comparable transactional evidence;
- an individual property’s value is determined by the interaction of many different, often intangible, attributes.
- there would also be a high likelihood of legal dispute and calls for revaluation.
The UK already has by far the highest property tax take of all OECD countries (at 4.2% of GDP compared to an average of 1.8%). High value residential properties already make a high tax contribution:
- their Council Tax bills are twice the national average.
- the highest 1.6% of sales yielded £1.2 billion in stamp duty in 2010. This is equivalent to 26% of all residential stamp duty. The new upper 5% Stamp Duty band will add around £290 million a year. Tightening up evasion would add another £150 million or so a year (assuming one in 10 transactions over £1 million avoid stamp duty).
- the top 0.7% of housing stock held at death contributes 36% of inheritance tax receipts from residential property.
It is likely that a Mansion Tax would raise, at most, £1 billion – the equivalent of 0.2% of total tax revenues. But the damage it could do could be far greater, particularly if it undermined the UK’s attraction to
international entrepreneurs and investors.