The mansion tax – good policy, or a tax on the south east?

“Labour faces legal wrangle to tackle mansion tax avoiders”, said a headline on page 2 of yesterday’s Times. The article discussed the incentive, created by the £2m threshold, to turn a home into more than one property. It quoted a lawyer as saying that the “obvious route” of attempting to break up properties will be caught by anti-avoidance rules.

Of course – for “Labour faces legal wrangle”, read “Labour will need anti-avoidance rules”. No surprise there.

The “unpopular” window tax, repealed in 1851, is a reminder that tax avoidance is nothing new. Nor is anti-avoidance legislation. There are long-established rules preventing owners of companies splitting a business into two to save corporation tax, and preventing the artificial splitting of a business to avoid having to register for VAT.

Is the mansion tax good policy? Last week Philip Collins argued that it was “taxation as pure political calculation”. It was “not a tax on property so much as a tax on the southeast of England”. A “more durable” plan would be to adjust council tax bands.

“What counts as a mansion outside London?” asked The Economist. It reported that:

According to analysis by Knight Frank, a London estate agent, 2.5% of all residential properties in Greater London would breach the £2m threshold. Two-fifths of these properties are flats and roughly the same proportion again are terraced houses. If the same top 2.5% calculation were applied to prices outside London, the point at which a house becomes a ‘mansion’ would vary enormously around the country.

Knight Frank’s analysis is here. As the Evening Standard reported last June:

Agents condemned the tax as “completely unfair” claiming that it will catch thousands of modest family homes in central London while the owners of large country houses in cheaper areas of the country will pay nothing.

The argument for some form of wealth tax to fund public services may be strong, but shouldn’t politicians grasp the nettle of the outdated council tax bands first?