Some politicians in the UK are only happy when they are thinking how they can take more money away from people to spend as politicians see fit. Far from wanting a private sector led recovery, they wish to shrink the private sector further in order to pay for a larger public sector.
This week-end has seen the news dominated by Labour’s plan for a Mansion Tax on properties worth more than £2m, and the Lib Dem’s possible plan for a wealth tax on assets of more than £2m. The Coalition have already increased Stamp Duty substantially on dearer properties, put Capital Gains Tax up to 28% from 18%, and cut the amount of money people can save in a pension fund from unlimited to £1.8m, then to £1.5m and in due course to £1.25m. Maybe that sets a precedent for how a Wealth Tax would work. It would start at a larger sum and work downwards quickly as politicians got a taste for spending the revenue from it.
These new proposed Wealth taxes are on top of our existing wealth taxes – people with wealth pay CGT on any gains, income tax on any income the assets generate, Inheritance Tax on passing it to the next generation, and a host of other property and spending taxes.
Labour’s tax might entail a person with a £2m property having to pay an extra £25,000 a year to live in it. That might be fine for a multimillionaire with a big income, but might be impossible for a pensioner living in a two bedroom flat in central London which they bought years ago for a small sum, when they have only a modest income. Income Tax is at least based on ability to pay. An asset tax is not based on that, and forces asset sales by people who are asset rich but income poor.
A Mansion Tax might lead to people knocking down part of their property to reduce its value below the threshold. Window taxes led to blocking up windows. Mansion taxes could lead to the demolition of the conservatory or the conversion of a spare room into an outbuilding. Maybe people will invite in teenagers to have a week-end party in their place, to do enough damage to take £50,000 off the value to keep it below the threshold. Unchic shabby will become the new decor for the flats hovering aroungd the £2m. People will be declaring noisy neighbours and anti social behaviour in their street to drive the values down.
The Lib Dem’s wide ranging possible Wealth Tax will create many more anomalies and problems for many more people. The widow in the £1.999m flat will not want to be given gem jewellery or a good painting, as it could take her into territory where suddently she would have to pay £20,000 a year wealth tax at 1%. It will give the very rich another reason to go offshore altogether. Buy to let landlords will be dumping their properties, and rushing to spend their surplus on better holidays or more expensive cars that depreciate rapidly. Maybe new businesses will spring up to take valuables off people, in return for letting them use or enjoy them without owning them. The Parliamentary draftsmen will need to be sharp to make the tax difficult to avoid. Assets are likely to be shared out more evenly amongst family members, with informal arrangements on their use that the taxman might find difficult to crack. The government is likely to lose out on Inheritance Tax, as more better off parents decide the give things to their children early so they no longer have to pay a Wealth Tax on them.
I would be interested in your thoughts on this latest wheeze from the politicians.