The mansion tax: how to make it work for Londoners

By introducing a mansion tax based on the last sale price of a property, rather than the current market value, the tax would hit only those who could afford to pay it, writes Tom Copley.

By introducing a mansion tax based on the last sale price of a property, rather than the current market value, the tax would hit only those who could afford to pay it, writes Tom Copley

Let’s face it, Council Tax is ridiculous. Taxing people based on the value of their property in 1991 is a farcical way for local authorities to raise money.

Nor does it afford many councils a sense of financial independence given that local authorities raise on average only a quarter of their total annual budget from it – being mainly reliant on grants from central government for the rest of their income.

This has made it incredibly difficult for those councils to mitigate huge cuts being passed down to them by the coalition government, as it tries to shift the responsibility for cuts onto local authorities.

The inflexibility of Council Tax also prevents local authorities from applying it more progressively. Given that Council Tax bands are all set in relation to the tax on a Band D property, councils can’t raise the level on the most expensive properties without raising it for everyone in the borough, including the poorest.

Council Tax is a politically sensitive issue, and successive governments have shied away from reforming or replacing it. It seems unlikely that either Labour or the Tories will propose any radical changes to Council Tax at the next election.

However, over recent years there have been growing calls to introduce a so-called ‘mansion tax’ as an additional tax on properties worth more than, say, £1 million or £2 million.

The problem in London is that, with average house prices already soaring towards the half a million mark large numbers of people will fall into the mansion tax bracket even though they don’t live in anything resembling a mansion. Many of these people will be asset rich but income poor, having bought their homes years ago when property was cheap.

Are these really the people we want to be paying a mansion tax?

There is, however, a potential solution; one which would catch only the genuinely wealthy and leave those on low and average incomes but who happen to live in an expensive house unscathed.

The Land Registry holds data on every single property transaction which takes place in Britain. This includes the sale price of the property. By introducing a mansion tax based on the last sale price of a property, rather than the current market value, the tax would hit only those who could afford to pay it. It would also allow the tax to be set at a higher level, thus raising a larger amount from a smaller number of much wealthier people.

Let’s say you’re a single pensioner who bought your house in Hampstead for £20,000 in the 1970s. It’s now worth in excess of £1 million. Based on the last sale price of the property you would not be hit by the mansion tax. Now let’s say you decided to sell your house in order to downsize. The new buyer would pay the mansion tax because the property was sold for more than £1 million.

There are also questions over where the money raised from a mansion tax should go and what it should be spent on. In London, which will inevitably feel the greatest impact of a mansion tax, there is a strong case in the short to medium term for the proceeds to be ringfenced to tackle the housing crisis in the city.

A larger number of homes in London being hit by a mansion tax would suggest that a housing shortage has increased house prices here; it would therefore seem fair for such taxes to be reinvested locally in order to mitigate this shortage. A fifty/fifty split between the Mayor’s Affordable Homes Programme and local authority council house building programmes would seem a sensible way to distribute the funds.

In the longer term, perhaps local authorities should be given more freedom both to set the level of and keep the proceeds from any mansion tax. This ought to be part of wider reform of local taxation giving councils more flexibility and financial autonomy.

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8 Responses to “The mansion tax: how to make it work for Londoners”

  1. Paul Gittings

    Not a bad idea but what is needed is a revaluation and the addition of many more council tax bands to take into account the exploding value of property in the London area in particular. This would give council’s greater autonomy and resources and be inherently fairer than the mansion tax which was thought up by the Lib Dems in an attempt to court popularity and has now unfortunately been taken up by Labour..

  2. Colm

    If someone lives in a house worth more than a million pounds, they are genuinely wealthy, whatever their liquid assets. People who bought a house at the right time aren’t entitled to the proceeds of the increase in value, because they didn’t earn it, they were just in the right place at the right time. They should have to satisfy the tax the same as anyone else, but the State should simply put a charge on their house they have to pay when they sell it.

  3. Simon

    Thats called stamp duty you twat, 7% or is that not enough for parasites like you

  4. McCurry

    My mum swapped house with my sister, because my sister had kids and my mum is single. If they were in Hampstead, I imagine my mum would not have swapped because my sister would be forced to pay the mansion tax, as a transaction had happened. This is too complex, Tom.
    If you want to tax property, do it through council tax. All it takes is a confident politician. No one is going to have a riot over this. They would riot if Thatcher was brought back from the dead, not over an increase in tax for the wealthiest.

  5. Colm

    Frankly, it isn’t, as shown by inflated London house prices, and the rather large deficit we are running.

  6. swatnan

    In fact a local income tax is the best way of taxing people, provided we can sharpen up our tax collection systems and get the rich to pay their fair share and not stack it away in the Caymans. Taxing the individuals earnings means those who are low income pay the minimal, but they do make a small contribution, whereas the fillthy rich pay hell of a lot more; I suppose its a kind of poll tax on the individual but a much fairer way.

  7. Kryten2k35

    Council tax is a total scam. It’s essentially a tax on breathing air, since you cannot avoid paying it at all (unless you stop working, but that’s not viable).

    This tax needs a major update, because ~£1,200 a year just for existing is downright fucking scandalous. The house we rent is probably worth £250k, but we rent it. It’s not ours. We’re not rich enough to be paying the top tax on the property.

  8. Terry

    Colm the rather large deficit is due to your rotten welfare warfare state, which is based on an impossible economic theory and therefore doomed to impoverish all.

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