Chancellor’s mansion tax plan attacks aspiration

Another week and another ludicrous tax proposal for the forthcoming budget. Rachel Reeves is reported to be looking at introducing a new mansion tax which would charge owners of properties worth £2 million and above an annual levy of 1 per cent above that threshold. This would mean owners of a property worth £3m would pay an annual tax of £10,000 for living in their own home.

It has already been criticised by the former governor of the bank of England, Mervyn King, who described the idea of a mansion tax as” incoherent” stating it was a “back of a fag packet” approach to the economy.

It certainly smacks of a late-night bright idea at the Treasury which looks increasingly less sensible in the light of day. This policy would be very difficult to introduce, to implement, or to enforce. Furthermore, the logic is nonsensical since it measures wealth in a very simplistic way.

Would the mansion tax treat equally someone who has owned properties which have increased in value over decades in the same way as someone who two years ago bought a £2.5m house?

Clearly, one person has accrued wealth through time and may now be asset rich and cash poor while the other is probably pretty well off although may be severely indebted due to having a very high mortgage.

In most cases the growth in property value will have arisen from inflation, which has increased by 681.2 per cent over the last 50 years.

How would properties be valued? Two identical houses in the same street might have wildly different values depending on their condition so would each house have to be independently valued and who would pay for that?

How would you force, now quite elderly people, to cough up this tax and what would you do if they didn’t have the money? But equally pressurising a younger homeowner who may be doing well but would now be hit by an additional tax simply for buying a home worth a certain amount.

For most people their property is their home. It may well have risen substantially in value over decades but that does not mean individuals are really wealthy. In most situations they may have one valuable asset – their home – but live financially relatively modestly.

Since the mansion tax was mooted at the weekend there has already been panic with some people wanting to sell before the Budget while others have withdrawn their properties in disgust. Shares in listed housebuilders dipped when the markets opened on Monday as the uncertainty and confusion over this policy will reduce the market for larger, more expensive homes.

This is yet another proposal to use peoples’ homes as an easy target for collecting more tax. This is another attempt to attack individuals who have strived, who have saved, who have paid substantial mortgages for decades and are now having this thrift punished.

The messaging for this is horrible and punishes those who have simply been following the best advice for decades and building up their assets principally through their property. It is a tax on aspiration, a tax on home ownership, and an attack on the housing market at a time when demand is reduced and prices are softening.