A think tank has warned a mansion tax would be difficult to collect and raise little revenue.
A report, published today by the Centre for Policy Studies and Savills, says top end property owners already contribute disproportionately to the overall tax take and LibDem plans for a 1 per cent tax on houses worth over £2m would hit those who are “asset rich but cash poor”.
Senior Liberal Democrats have mooted the mansion tax as a possible replacement for the 50p income tax rate. Reports over the weekend suggest the party is now ready to allow the top rate to be cut or reduced.
The Sunday Times reported Liberal Democrats are no longer “ideologically attached” to keeping the top rate. The paper quotes a source close to Lib Dem leader Nick Clegg as saying: “At one stage, keeping the 50p rate was our party policy. Not any longer. We are willing to contemplate it going but we want an alternative tax on wealth in return.”
CPS director Tim Knox says: “A mansion tax would strike at the heart of aspiration and of property ownership. You can be sure that it will, over time, spread to include more people as politicians seek new funds for pet projects.”
Savills director of research Lucian Cook says: “A new annual levy such as that proposed with a fixed threshold, would really distort market dynamics and would penalise cash poor long-term owners of properties that have passed the threshold by dint of house price inflation.”
The report says it would be hard to value properties as prices have risen so much in recent years and that any valuations would be open to extensive legal dispute.
It also claims the top 1.6 per cent of residential property sales in 2010 accounted for 26 per cent of that year’s total stamp duty tax take and the top 0.7 per cent of housing stock contributes over a third of inheritance tax receipts from residential property.
Cook says: “The common perception is that owners of high value homes pay a disproportionately low level of taxes but this analysis really explodes that myth.”
Details of HMRC’s review of the 50p income tax rate is due to be published alongside the Budget later this month. It is expected to show that it does raise money for the Treasury, in contrast to a report by the CPS last year that claimed it could cost Government £1bn a year.