LEGAL & GENERAL BOSS: We do not need a mansion tax - we need to build more homes
Taxing £2million-plus houses has obvious political attractions. It is anti-fat cat and anti-London, and it shouts ‘we’re on your side’ to those struggling with the housing ladder.
Many baby-boomers, including me, benefited from house price inflation. In the South East, it looks like a windfall.
So I understand the temptation to tax the most valuable housing.
Home from home: We shouldn’t tax, we should build - including for the 4.5 million retirees who want to right-size from under-used but valuable family homes
But I also want a tax system which is workable and fair.
A mansion tax is neither. It won’t help the housing market, and it won’t help the deficit.
The politics of envy, as usual, is poor economics.
The problem with housing isn’t taxation – it’s supply and demand.
There just aren’t enough houses, particularly in the South East.
Decades of inflation means 70 per cent of the £2million ‘mansions’ in London are actually flats or terrace houses.
We need to build more homes: 200,000 annually, including on brownfield sites in the green belt.
We need these new homes for sale, private rental and in the affordable sector.
It was a big mistake to build nothing to offset Thatcherite council house sales. Local and central government should get back into housebuilding: 25,000 homes annually would be a good start.
A successful housing market needs people to move. The mansion tax threat is already slowing top-end sales - with repercussions down the chain.
Fewer top-end houses means more homeowners stay put and fewer opportunities for first-time buyers.
We shouldn’t tax, we should build - including for the 4.5 million retirees who want to right-size from under-used but valuable family homes. They need more housing choice, but taxation makes it harder to move and unlock savings.
We have a stubborn £100billion deficit. But a mansion tax is an inefficient tax. Estate agency Savills reckon that raising £3,000 per year on the 40,000 properties worth between £2million and £3million would yield just £120million: just a tenth of Labour’s mansion tax target. It could be less. Many ‘asset-rich, cash poor’ homeowners will be exempted or defer payment.
We need to build more homes: 200,000 annually, including on brownfield sites in the green belt
Meanwhile, an army of tax advisers is already working out avoidance schemes for the 57,000 homes worth £3m or more.
Mansion tax isn’t effective, but it isn’t fair either. Most obviously for those who have lived in a property for a long time: a house worth £2million now was not an extravagant purchase 30 or 40 years ago.
Mortgages, moreover, are paid out of taxed income. People who prioritise buying a home typically make sacrifices: fewer holidays, meals out or other luxuries. A mansion tax punishes their prudence.
And wouldn’t it just be the thin end of the wedge?
If a mansion tax didn’t raise enough money from the top end, what would a chancellor do? Obviously, lower the threshold to whatever was politically expedient, creating even more problems for the housing market.
I am all in favour of progressive taxation, but there are better ways for politicians to tax property.
Reform the domestic rates, put additional high-value bands in place, and make second homes pay a premium. We already have the mechanism, and the money can be used, not by Whitehall, but by cash-strapped local authorities.
A ND let’s reform taxes that are currently regressive or unfair. For example, pension tax relief works by giving a tax break at the individual’s marginal rate: the more you earn, the more you gain.
One in six people pay higher-rate tax, but they get two-thirds of the £35billion subsidy. It’s just not right.
By changing this relief to a flat rate of 25 per cent, the Government would save £8billion every year - ten to 20 times more than the projections for a mansion tax.
Tackling pension tax relief is less eye-catching than clobbering bankers with underground cinemas - but that’s not what a mansion tax would do.
In terms of fairness, tax yield and, for the housing market, reform of pension tax relief, works much better.
And we need more houses, not more tax on them.
* Nigel Wilson is group chief executive of Legal & General
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