CML news & views

Housing and home-ownership are set to be key issues in the forthcoming election, as the Liberal Democrats’ property wealth tax proposals showed last week.

In a speech to the party’s annual conference, Liberal Democrat shadow chancellor Vince Cable proposed a 0.5% annual levy on homes worth more than £1 million. The money raised from what was quickly dubbed the “mansion tax” would be used to raise the income tax threshold to £10,000, he said. It certainly grabbed the media’s attention and renewed the debate on property wealth and council tax. 

Media coverage focused on some obvious questions about the proposal. How, for example, would property values be calculated and updated every year? The Liberal Democrats argued that local authorities could use Land Registry data to estimate which houses were worth more than £1 million, suggesting an automated valuation model could be used.

But would there not be disputes between home-owners and tax officials over whether a property is more or less than £1 million and, if so, by how much? If homeowners are able to appeal, would this simply lead to an annual battle between property owners and local authorities? This could create a heavy and expensive administrative burden.

And how would that affect the cost of administering such a tax? The answer, of course, depends upon how many properties would be taxable and at what margin. Estimates have varied widely as there are no detailed figures on the value of individual properties in the housing stock.

Liberal Democrat leader Nick Clegg has said it would affect just less than 1% of property owners, which corresponds with Land Registry data showing that just less than 1% of properties transacted in May 2009, and May 2008, were for over £1 million.

The BBC reported that the tax would apply to 250,000 people, which roughly equates to 1% of the 26.7 million households in the UK. However, the 26.7 million households include those living in social and privately rented accommodation, as well as home-owners.

The number may be smaller. When the council was introduced in 1991, the top band was for properties worth over £320,000. If you apply the average rise in the Nationwide house price index since then, this takes the upper band threshold to £950,000. According to the Survey of English Housing, there were 206,000 properties in the top council tax band in 2007/08. 

Is it fair to dub the proposal a "mansion tax"? The value of properties in the top band will vary widely from family homes in inner London, to country estates and mansions owned by the world’s wealthiest citizens.

However, Mr Cable has said the policy aims to address an anomaly in the council tax system whereby “Messrs Mittal and Abramovich in their £30m palaces pay the same as a band H family home though their properties may be worth 40 or 50 times as much.”

But is a property wealth tax the fairest, most efficient and cost effective remedy? And is another levy on people's homes appropriate, given that property is already taxed through council tax, stamp duty and inheritance tax?