Managing Director H Forman & Son Lance Forman condemns mansion tax


- Credit: Archant

Everything comes back to economics. If we want a health service, education, defence and so on, without a strong and growing economy this is impossible. Equally though it’s important to get tax policy right to make sure that maximum golden eggs can be extracted without killing the goose, so to speak.

One such golden egg now being proposed looks like a very bad egg indeed; I refer to the idea for a mansion tax, so allow me to explain the economics with a simplified example.

Putting aside inheritance tax, the Government already earns tax on property through stamp duty every time a house or flat is bought or sold. Labour and Lib Dems are suggesting that well off people owning properties of £2million or more should pay a new tax of one per cent of the value of their property every year above that threshold.

Let’s assume Mr Fat Cat has a home worth £3million. Each year he would need to pay one per cent tax on £1million, amounting to £10,000. For him to earn £10,000 each year so he can afford that tax, with interest rates on large savings at say two per cent, he would need in theory to have £500,000 cash in the bank. So when it comes to buying the house for £3million, a purchaser would need to take into consideration the funds to afford the tax too and would ultimately reduce their offer on the property by the equivalent amount. A £3million property would now only be worth £2.5million

The effect of this is that Stamp Duty tax raised by the Government would reduce. Stamp duty is currently seven per cent on properties over £2m; so £10,000 gained in mansion tax annually would lose £35,000 in stamp duty. Worse still, with the property value falling to £2.5million, owners would argue the mansion tax should only be one per cent of £500,000 ie £5,000. This process would provide no net benefit whatsoever.

Tax policy should be used to incentivise growth, not to punish wealth creation, otherwise we’ll stifle growth and not get the services we all want. Save the goose!