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Articles > Money September, 27, 2013

Mansion Tax is a Bad Idea

Avision Ho
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One of the most interesting policy proposals to come from the Liberal Democrats is the ‘Mansion Tax’. Being a tax on homes valued at or above £2 million, it should in theory, be an innovative way of progressively taxing the wealthy.

We will be receiving £1.7 billion going on to £2.5 billion a year in tax revenues; all of which will be spent wisely on more administration fees, bureaucracy and increased red tape. Not to mention that they’ll be easy to collect, compared to the recent law changes made in Osborne’s budget which allows British companies setting up overseas to pay that country’s tax rate instead of Britain’s one. Most compelling of all is that it’s a tax on consumption rather than production. Whilst a rise in income tax rates may lower productivity, one based on unproductive assets isn’t as harmful on the economy. Lastly, we’re taxing the rich, so it must be good right?

Mansion Tax

Photo by Humberto Moreno

The problem is houses are a great means of combatting inflation. Leaving your savings underneath a mattress is hardly going to be wise when inflation kicks in and devalues the currency. That £40,000 you were storing for a Jaguar will soon ONLY be enough for a Ford Fiesta. What should you do then? Well buy homes with it. After all, given the trend of exponential rises in house prices over the years, it’s clear that not only will you protect your money from the effects of inflation, but you may even increase its value. It’s win-win.


Photo by Images Money

That is until you consider that purchasing another house. This is a very expensive business, and for most of us, is out of reach. Those who can, the affluent section of society, will. Indeed that’s one of main reasons why you see whole swathes of Kensington’s homes and apartments being unoccupied. The owners hardly buy these homes so that they could live there permanently. They buy them so that their riches are protected.

A mansion tax is good then. It punishes those swines for hoarding up property. However, let us not take their intelligence for granted. We’ve already seen how adept the rich are at avoiding taxes. Why not the same here? The clincher here is the fact that avoiding a mansion tax would be infinitely easier than setting up an offshore bank account. To avoid paying it, they simply need to sell their mansions and buy up all the property valued below £2 million.

The ramifications of this lies in the fact that it isn’t just the wealthy who want property. Millions of ordinary citizens need homes to shelter themselves and their families. Factor in the housing shortage that besets Britain and we begin to see demand rising higher and higher. As demand increases, so will the prices. With higher prices, more and more people will have to give up buying a home – they were simply priced out of the market.

Taking this into consideration then, a mansion tax would not be easy to collect for there will be hardly any to collect. It won’t raise the projected £1.7 – 2.5 billion government tax revenues as the rich outwit the government yet again. The only upside is that the market mechanism will kick in and persuade building planners to erect new homes. Yet, is the long wait for more houses enough to justify a mansion tax though?

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  1. Anonymous

    Marvelous website, thank You !!

  2. Farhaan Sadiq

    before reading this article I supported mansion tax, however your article has shown me that this is actually a bad idea, this is a very well thought out argument, and you raise some good points, personally i do not think all the rich will try to wriggle out of paying the tax, but now that you mention it the vast majority will.

    • Avision Ho

      Thank you. Over time my own opinion of the Mansion Tax has changed. I still believe in the points made but I think that if the policy is well thought out enough then it can potentially work.

  3. Alec Christie

    Just because some rich people might try to avoid it doesn’t mean that it should be shelved. This is just conservative rhetoric.

    • Avision Ho

      Whilst I’m not advocating that the Mansion Tax should be shelved, I do believe that it should be better thought through.

  4. Corrie Green

    the mansion tax is pointless as firstly yes i agree with the way houses are going at the moment it will be nearly impossible for ordinary working people to own even a simple house, however i dont understand how taxing the rich for owning an expensive house is justified, it in essence heavily taxing someone becasue they happen to make more money, making it unfair for people who have worked hard to imporve their life and class.

    • Avision Ho

      That is if you are of the persuasion that the majority of rich people are in their financial position due to hard work and effort. Some (wouldn’t go so far as to say the majority) may be rich because of inheritance of either wealth or connections.
      On the other hand, those who did work hard and earnt their riches fairly, could you not argue that the state has played its role in helping them become rich through providing them with the opportunities (social mobility) to improve their standard of living?

  5. Elidh Devlin-Alce

    You make a good point, but lots of people live in expensive houses, and wouldn’t be willing to move to a smaller one just to avoid tax, also this might help prevent large amounts of land being used building extravagant houses, which increases the price of land, making housing more expensive.

    • Avision Ho

      You make a good point also! When I was writing the article, I had foreign homeowners in my mind. That is, people who reside abroad but buy properties in London to exploit the ballooning housing sector.

  6. Alec Christie

    It makes a valid point but this is hypothetical – will the rich really be bothered? Will they really scramble to sell their property? If they have this much wealth this tax won’t really dent their finances if they can afford property of this price. It may be more of a publicity stunt to tax the rich and help the poor but at least it’s a step in the right direction. It could be altered so that there is some sort of banding system in place to tax property lower than the £2 million. As for estate agents lying about house prices, well since the previous property prices can be easily found out through zoopla and other information, the government could easily see where the rich are trying to deliberately devalue their homes.

    • Avision Ho

      Well if Ed Miliband is to be believed then whilst the rich won’t sell their properties, the tax revenues raised will be enough to significantly fund the NHS!
      As for the banding system, there is already one in place that’s used to determine how much council tax you pay.

  7. Stuart Houghton

    A good article, I agree with your points, a mansion tax will only be avoided by the rich anyway by paying estate agents to say that their home is less than £2 million.

    • Avision Ho

      Thanks! As Alec noted above, sites such as Zoopla can shed some light on the real value of a property so it would be difficult for the rich to get away with undervaluing their properties.