The leader of the UK’s opposition Labour Party, Ed Miliband, has caused a stir by pledging to introduce a ‘mansion tax’ if he becomes Prime Minister after next May’s general election. Under the proposal, which is designed to raise an additional GBP1.2 billion a year for the country’s National Health Service, an annual charge would be imposed on homeowners whose properties are worth more than GBP2 million.
Labour says that the tax would be progressive, with the owners of properties worth between GBP2 million and GBP3 million paying only an extra 250 pounds a year, while those with properties worth “tens of millions of pounds” would make “a much bigger contribution”. The party also says that it “will look at asking overseas owners of second homes in the UK to make a larger contribution than people living in their only home. It can’t be right that the foreign buyer of a GBP140 million flat in Westminster earlier this year will pay just 26 pounds a week in council tax [the existing property tax that funds local authorities in the UK] – the same as the average-value property in that council area.”
Although it is estimated that the tax would catch only between 58,000 and 110,000 properties in the UK, the proposal has caused controversy, largely because of its potential impact in London and the south-east where more than 80 percent of the affected properties would be located. As critics have pointed out, rampant property-price inflation in the capital and its hinterland over the last decade means that the tax would apply to many properties in the region that few people would regard as mansions. It has therefore been suggested that the tax would penalise older, cash-poor homeowners who have lived for decades in relatively modest properties that are now worth more than GBP2 million. And with the increase in property prices showing no signs of abating (prices in London rose by 19.1 percent in the year to July 2014, bringing the average price of a home in the capital to an eye-watering GBP514,000), there are also fears that more and more ‘ordinary’ family homes would be caught by the tax over the course of time.
Labour has sought to address these concerns by making a commitment that the GBP2 million threshold would be increased in line with inflation in the market for high-value properties. It also says that homeowners whose annual income is under GBP42,000 a year (the threshold for the 40 percent higher rate of income tax) would be able to defer payment of the mansion tax until their properties changed hands. But with the 40 percent income tax threshold itself not having kept pace with inflation for many years (if it had, it would now hit only those earning more than GBP90,000 a year), this may prove of small comfort to asset-rich but cash-poor older homeowners. The reluctance of successive governments to increase the higher-earning threshold in line with inflation may also give rise to a certain degree of scepticism about Labour’s pledge that the mansion tax threshold would keep pace with inflation.
The controversy reached new levels of intensity this week after Mr Miliband was taken to task on live TV by presenter and former pop star, Myleene Klass. “For me,” she said, “it’s so disturbing – the name in its own right: ‘mansion tax’. Immediately you conjure up an image of these Barbie-esque houses, but in London, which is where 80 per cent of the people who will be paying this tax actually live, have you seen what that amount of money can get you? It’s like a garage. When you do look at the people who will be suffering this tax, it’s true a lot of them are grannies who have had these houses in their families for a long, long time. The people who are the super-super rich buying their houses for GBP140million, this is not necessarily going to affect them because they’ve got their tax rebates and amazing accountants. It’s going to be the little grannies who have lived in those houses for years and years.”
Mr Miliband’s response was profound. “I totally understand that people don’t like paying more in tax”, he said. “The values of my government are going to be different to the values of [the current] government.”
This did not mollify Ms Klass. “You may as well just tax me on this”, she said, pointing to a glass of water. “You can’t just point at things and tax them”.
There, alas, Ms Klass was sadly mistaken. For centuries, governments have been pointing at all sorts of things and taxing them – whether it was England’s tax on windows in 1696 (an emergency wartime measure that somehow lasted for 150 years), Peter the Great’s attempt to encourage Russian men to shave by taxing their beards (he thought the clean-shaven look more Western) or the Roman Emperor Vespasian’s tax on urine purchased by launderers as a cleaning agent from Rome’s public toilets (“does this smell, son?”, he is said to have asked his sniffy heir when the cash came in).
Viewed from that perspective, the proposed mansion tax, whatever its merits, is simply the latest illustration of a long-established principle – if you can point at it, you can tax it.
Dr Craig Rose, Technical Editor, Global Tax Guide
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