Extreme value properties: tax them or sell them off?

I attended a Hustings event in a Catholic church in North West London. For me, the most remarkable point of a quite entertaining evening was when the priest rose to ask a question. What would it be? Poverty? Food banks? Bedroom tax? Help for the starving of the world? No, he asked about Mansion Tax and the problems his parishioners would have paying it. Perhaps I will send him a few Cafod leaflets, or perhaps Trussell Trust?

This little tale illustrates the point that the Mansion Tax has some traction in parts of London, despite being generally popular. Not enough to change the political direction, but it has become an issue that lots of people talk about. Despite Labour’s best efforts, there has been quite an effective disinformation campaign by the Conservatives. Several candidates have sent out thousands of letters designed to look like an official demand for the tax from the local council – ‘Mansion Tax Revaluation Information’ – implying that people would have to pay up to £20,000. In some constituencies the Tory candidates appear to talk about nothing else.

Of course the Tories, and therefore most of the media, never mention Labour’s two most important caveats on the policy:

  • First, that the £2 million starting threshold will rise linked to increases in prime property values, not any other index, so that the number of homes caught by the tax should not increase. Because people are not aware of this, the most worried people are those who will not pay it but fear that they might have to.
  • Secondly, that there is a powerful deferral mechanism so that anyone earning £42,000 or less will not have to pay the tax out of income, it can become a charge on the property when it is sold. This addresses the ‘asset rich income poor’ problem but it has not entered the consciousness: so many people simply say that they cannot afford to pay £250 a month and will have to move.

A common theme amongst complainants goes like this: ‘We bought our house with a big mortgage thirty years ago and we have carried out big improvements. It’s not our fault that property prices have risen so much and the house is now worth so much. It is our family home and it is unfair for us to be forced to move.’ Apart from illustrating that they are not aware of the deferral policy, there is a touching belief that the rise in value is down to their own efforts and not an unearned windfall from being in the right place at the right time through the property bubble – the point that justifies this tax.

Conservatives are being disingenuous in another way as well. The fact is that many of them believe in raising more tax on high value property, just not Labour’s Mansion Tax. Paul Dimoldenberg has traced many of their policy pronouncements on this issue.

Just one example illustrates the point. Conservative MP for Westminster South until Parliament was prorogued, Mark Field, is in favour of re-banding council tax and adding new bands to the top (similar in principle to the Mansion Tax). He says:

“..the (current Council) tax is not even particularly proportionate to property values, with the same amount levied on all homes valued at over £320,000 in 1991 prices. This means that around half of all houses in the capital are now placed in the same council tax band even if their size, location and value are vastly different. A Knightsbridge oligarch, for instance, is paying £1353.48 annual council tax for a £60 million home – exactly the same as properties worth one-thirtieth that sum.
Let us take Westminster as our example here. In this Central London borough, a Band H property would now likely be worth over £2 million and there are now just under 15,000 of such homes. But there is a vast difference between a £2 million flat in Pimlico and a home valued at £60 million at One Hyde Park. So the local authority might be empowered to impose two additional bands – there could be, for instance, Band H for prime properties worth between £2 and £5 million; Band I for so-called ‘intermediate prime’ properties in the £5 to £15 million bracket; and finally Band J for super prime properties worth over £15 million”.

Now Conservatives are not going from door to door saying ‘oppose Labour’s Mansion Tax, support the Tory super council tax’. Perhaps Labour should tell people on their behalf.

Stunningly high property values in the central/west/north-west London constituencies have a big impact in relation to another Tory policy: the right to buy. Under their current proposals, the cost of discounts (up to £103,000 in London) for housing association tenants exercising the right to buy will be met by forcing councils to sell their most valuable or expensive council housing.

The detail of the policy reveals their definition of ‘expensive’: over £340K for a one bed flat, £400K for a 2 bed, and so on. In Westminster, the cheapest 1, 2, and 3 bed flats are above the threshold. This means that it is likely that every flat becoming available for letting in Westminster will have to be sold. Paul Dimoldenberg reveals that Westminster Council estimates that 410 council flats will become empty and available for letting in 2015-16. All of these flats will have to be sold off and, in the current market, are likely to go to property speculators, foreign buyers and buy-to-let landlords. As Paul says:

The stark implications of this policy is that no local families will ever be rehoused in Westminster again as the Council will be forced to sell off all its flats which come vacant. Only the rich will ever be able to live in Westminster. This will be a hammer blow to local communities all over Westminster.

The impact in neighbouring boroughs like Camden and Hammersmith will be less dire but still very dramatic. In these constituencies it is to be hoped that the Tories’ sell off plans will replace the Mansion Tax as the main topic of conversation. Even for priests.

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7 Responses to Extreme value properties: tax them or sell them off?

  1. Dan Filson says:

    Another council tax scandal is that home improvements like adding extra bedrooms doesnt alter the Council Tax band while you live in it. Only after a sale does a possible rebanding occur, but I wonder how many properties dont get revalued. There ought of course be a revaluation exercise in toto but in theory this is fiscally neutral. If a value is trebled, the poundage drops to a third. But a revaluation would skew still further the relative inequalties between local authorities’ revenues in different parts of thr country.

    As for council-owned council housing worth over £1million, is it suggested they be sold off eith their tenants still in situ, or only when falling vacant? Either way, there’s very little chance of the proceeds buying replacement properties in the same number and size as those sold, given the requirement to redeem debt in them first. It is another variant of social cleansing Lady Porter style.

    • Dan McCurry says:

      The mansion tax is a political problem Even it’s name sounds like an attack. Many of the people, who we are apparently attacking, are our supporters.
      As for Council tax, it won’t reform because they fear a riot. This hardly makes sense but thats the history of it. Political again.
      My point earlier is also political. People will let the Tories take control of this issue for fear of confronting it politically, At the moment, they want to sound brave. LIke a teenager who would stand before a firing squad for the cause. The difference is that these are adult Labour members who have the poor standing before the firing squad, for them. That’s how brave they are.

      • danfilson says:

        I’m confused by the firing squad metaphor. Someone is being accused or cowardice or bravery but I am unclear who. Council tax is screaming for reform and I think the public grasp that. Only those who have doubled the size of their homes or live in huge houses anyway will object. The rich scream loudest, as ever!

      • Dan McCurry says:

        Dan, what I mean to say is that if we don’t act, the Tories will sell off vast amounts of property and the revenue will not be reinvested in social housing. People who say they are sticking up for the tenants by resisting this, are being disingenuous. The losers will not be Labour politicians, but the people who need to be housed. Its not brave to bury your head in the sand. Even if Labour win in May, the Tories will return to this issue when they do win. By moving social housing out of inner London we are saving social housing. By keeping it in central London we are endangering it.

      • danfilson says:

        I disagree. Moving away from having any social housing in Ventral Zlondon wouldn’t stop there. You would end with a doughnut where the jam in the centre is the more desirable housing with good transport connections and the poorer confined to the outer boroughs or even outside Greater London. I believe in communities that are mixed not ghettoes, social housing should not just be for the poorest on a safety net basis; but we need a great deal more housing built or bought.

  2. Dan Filson says:

    The Mansion Tax has several functions.

    Firstly, it may – just may – take some steam out of the top end of the property market, which whilst not my greatest concern might ripple down the chain. The less vendors get, the less they can reinvest down the food chain and the less other investors might be tempted into the top end markey.

    Secondly, it’s a relatively unashamed proxy for a wealth tax, aiming to redistribute wealth from the very rich to the rest of us, but also from the south-east to the the rest of the UK. Of course there are £2+m homes elsewhere but these are greatly outnumbered by those in the S-E. The fact that the declared purpose of the mansion tax is to do with the NHS is just legerdemain, as we don’t hypothecate taxes in this country generally. No doubt an amount equal to the revenues will be spent on the NHS, and across England not just in the South-East, so it’s not a false election promise. Incidentally, I am convinced we obsess too much about top rates of income tax being beyond 40% and shy away too readily from taxes on wealth. We are also skewing the entire investment market from being a level playing-field by not taxing capital gains on owner-occupied property though I accept it’s a bold MP who would propose that. But as a result anyone with money always seeks first to stretch themselves buying on margin an owner-occupied home (and you don’t buy Rembrandts or ICI shares on margin the same way a mortgage lets you buy a home, lived in or for renting out!).

    Thirdly, it compensates for the paucity of property taxes otherwise and their poor reach. The issue of insufficient Council Tax bands has been mentioned slready and these further bands are indeed needed. But Council Tax as at present structured is deliberately limited to multiples of the Band D rate, and currently run from 6/9ths to 18/9ths of Band D. Extra bands might well, if introduced by one of the current Coslition partners, be similarly linked and thus the £60million home would still not pay that much extra. Remember that the huge falls in Revenue Support Grant to local authorities are reducing local authorities’ income based on need, however crude the formulae, to broadly just Council Tax and National Non-Domestic Rates, plus such revenue as comes infrom fines, charges, penalties etc. Given that RSG is mostly funded from progressive taxes, the creation of extra bands are poor compensation for lost RSG funded in part by the same people.

    However, the mansion tax is not yet fully thought through.and may emerge in its legislative form somewhat different from proposals so far released, as the hapless Jamie Reid – a shadow Treasury minister, God help us – tried to explain to Andrew Neil’s relentless questioning. We haven’t yet got across the property-inflation-linked threshold; many Georgian villa owners and the like are apprehensive of fiscal creep, should their properties rise in value at a greater rate of inflation than the RPI or CPI. Thiis is inept PR for a new tax and could indeed cost us Hampstead and Kilburn and prevent us winning Brentford & Isleworth and possibly other seats too and should Chiswick residents and who knows who else have been toying with not voting Tory.

    But it’s also a bad idea that a property worth £2million will pay the same as one worth £3million. I could just about buy that the proverbisl widow living on her mite might be living in a home that just drifted over the decades beyond the £2million threshold though I’ve yet to encounter one with an income below £40k, nor a humble widow’s abode in a mansion block worth over £2million. But it does seem wrong that there is no stepping of the charge for a full million pounds. I have suggeted elsewhere how a self-assessment regime coupled with monthly instalments and a freeze of the payment rate for teo years, but coupled with a risk-assessment approach by HMRC as to which values to review and a savage penslty regime for under-declared values, might make this a cheap tax to administer. But our Treasury team really needs to get their skates on if the proposals in the emergency budget and the Finance Bill that follows the budget resolution are to include fully worked-up proposals. I’m not confident as yet.

  3. Dan McCurry says:

    I think the Tories will run rings around us if Steve’s last comment was shared widely. He says that he fears a future where poor people cannot afford to live in Westminster.
    Surely we should fear that the proceeds of the sell off go to the Treasury rather than be reinvested in housing. Surely a reduction in the amount (of housing within transport link of jobs) is what we should fear.
    If Labour took command of housing policy we could build two family homes in Zone 3-4, for each Zone 1 flat that was sold.
    However there is no consensus in the Labour Party, so the Tories lead the intellectual arguments. We will be the losers if we don’t get a grip.

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