Property warning: How Labour and Lib Dem got mansion tax sums ‘completely wrong’

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In February, Boris Johnson was reportedly considering introducing a mansion tax for high value homes. According to the Telegraph, the measure was being examined as a way of helping pay for large scale infrastructure improvements, primarily in the north of England. Two sources close to Number 10 suggested that the Prime Minister and then-Chancellor Sajid Javid were looking for ways “to raise more tax from better off homeowners” and that the mansion tax had been discussed by the Treasury and Number 10.

The plans appear to have since been dropped, though, as the fact that an idea originally floated by Labour and the Lib Dems was being discussed by the Government infuriated many Tory activists.

Almost exactly seven years ago, it was then-Labour leader Ed Miliband who pledged to introduce a mansion tax on high value properties.

The policy was incredibly controversial and was seen as contributing to Labour’s defeat at the 2015 General Election.

Last year, during the December 2019 general election campaign, former Shadow Chancellor John McDonnell told the Financial Times that Labour would have no longer advocated for it as it was considered too radical.

Moreover, according to a 2013 report by The Telegraph, both Labour and the Lib Dems got the sums completely wrong, as applying a 1pc annual tax on properties worth over £2million would have not raised the money claimed by both parties.

The Lib Dems first proposed the controversial tax – which would have applied primarily to Londoners and owners of historic properties – and then Labour followed.

Both proposed an annual “asset tax” of 1pc of the value of a property above the £2million threshold.

By the Lib Dem’s calculations this would have brought in £1.7billion per year or, by Labour’s reckoning, a higher £2billion.

Knight Frank, the upmarket estate agent, combed the data from HM Revenue & Customs and Land Registry to discover the numbers of properties currently within the net and their likely value.

It estimated the number at 50,000, but said “figures of between 35,000 and 74,000 have been variously put forward”.

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It was also difficult to discover the average value of a £2million-plus house, Knight Frank found, as official data was contradictory in some respects and incomplete.

By its calculations the average value was £4.4million.

Based on these figures it reckoned after exempted properties were taken out of the equation, the tax would have raised £1.3bn per year – a shortfall on parties’ expectations.

In order to reach the Lib Dems’ target of £1.7billion, Knight Frank calculated that the threshold would have had to drop to £1.25million.

Even if dropped to that level, the revenues would have only totalled £1.9billionn, it found, suggesting Labour’s sums were wildly over-optimistic.

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Jonathan Harris, director of mortgage broker Anderson Harris, said: “The problem with this pernicious and grossly unfair tax is that it wouldn’t just hit just the wealthy in their mansions and swanky apartments but also homeowners living in relatively modest family homes who have benefited from house-price rises over the years. Many of these will be older homeowners who have all their worth tied up in their property and who would therefore struggle to pay anything like the £2,000-a-month average mansion tax.

“The only option for many would be to sell up and trade down to a smaller property – quite a wrench when you consider that this is the family home they may have lived in for many years.”

Naomi Heaton of property fund manager London Central Portfolio said: “If the Government or opposition parties feel the wealthy are not paying enough tax, they should find fairer ways of raising revenue.

“This tax does not take into account someone’s mortgage, for example.

“You cannot tax a family by simply looking at the value of the house they have chosen to live in.”

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