El sueño de la razón produce monstruos: How the Mansion Tax will not lie down and die

by on for PrimeResi

We don’t know whether Labour Councillor Claire Reynolds is an aficionado of Goya’s etchings, but her latest proposals could have been inspired by one of his most famous epitaphs, says Anthony Hennessy…

To paraphrase (but only slightly) the opening of LP Hartley’s The Go Between, “The North is a foreign country: they do things differently there”.

What has prompted this rumination and, indeed, the title of this article, more of which below, is the statement, reported in certain parts of the national press, by a Labour Councillor in Greater Manchester to the effect that not only is a “mansion tax” a good idea but that it should be regionally adjusted to catch dwellings in areas where property prices are lower than in London and the South East.

Claire Reynolds, the Labour councillor in question, who, according to the Daily Express, is “a member of the Progressive Strategy Board and part of Ed Miliband’s inner circle,” is reported in the same paper to have said: “I would quite like to squeeze the rich in a number of ways. One of them is a regional mansion tax. Labour supports the mansion tax.

“So if you own a house which is two million quid, sorry but for those who live in the North that is ludicrous.” She went on to say: “In Stalybridge [on the east side of Manchester] I haven’t seen a house advertised at over £500,000 and we’ve got really nice mansions. There are six; seven, eight-bedroom houses there, and you can buy them…for about £400,000.

“In the North there are people who could be paying more and aren’t.”

While, a rival mid-market tabloid has reported that Labour has said that Ms Reynolds’s proposals would not become party policy her comments are testament to the adhesive qualities of the idea of a “mansion tax”; in popular parlance, its traction. It has acquired a symbolic quality, particularly in arguments about redistributive taxation. In addition, the fact that bricks and mortar are not susceptible to being hidden away in offshore bank accounts makes real estate an obvious and attractive target for taxing.

In addition, with the higher rate of stamp duty land tax (‘SDLT) of 15% on acquisitions of residential property by “non-natural persons” (companies and certain other entities) now, since March, applying where the consideration

exceeds £500,000 and the progressive extension of the annual tax on enveloped dwellings (‘ATED’) to a starting point of £500,000 from April 2016, there is already a form of mansion tax in place.

The difference between the present system and more general mansion tax proposals is that, at the moment, there is a, partial element of choice as to whether it applies. If residential property is held personally or other than by “non-natural persons” then the higher rate of SDLT and the ATED do not apply.

A universal “mansion tax” is more likely to affect the asset rich but cash poor such as pensioners who, even in the `north’ may find that a relatively modest dwelling is subject to such a tax. Corporate ownership of dwellings usually implies a modicum of relatively sophisticated financial pre-meditation in structuring ownership which is likely to have been absent from the minds of pensioners living in a modest semi which, even in the north could be caught by Ms Reynolds’s tax.

Undoubtedly such a tax would depress housing activity and, as is the case with the UK residential property market, would have wider implications for the UK economy generally. Extending its ambit would only aggravate that tendency.

One of the problems with a regionally adjusted tax is on what geographical basis it will apply. Where would Ms Reynolds say that ‘north’ began? SDLT used to be subject to “disadvantaged areas” relief (abolished in 2005) where land transactions were exempt from SDLT if the land was in a disadvantaged area. These disadvantaged areas were based on electoral wards. This could throw up some bizarre results: Canary Wharf, the Bull Ring in Birmingham and one of Manchester’s high rent shopping streets were all in disadvantaged areas. The cliché of a “postcode” lottery was well applied to disadvantaged areas’ relief and would be equally applicable to any attempt to adjust the entry level for a mansion tax.

The ATED, imposes reporting and valuation obligations on the taxpayer which, to some extent reflects the spirit of revanchism in which it was conceived: the Treasury’s idea of payback time for all those property owning offshore companies. To apply such obligations to our notional pensioners in their modest semi would be punitively disproportionate.

I don’t know whether Ms Reynolds is an aficionado of Goya’s etchings but her proposals could have been inspired by the one referred to in the title. The full epitaph for the etching in question is: “Fantasy abandoned by reason produces impossible monsters”. Enough said really.