Tuesday, October 13, 2009

some thoughts re the LibDems proposal for an annual levy on expensive houses

Here are some thoughts on a LibDem proposal for an annual levy of 0.5% per cent on a property's value above a threshold of £1m which was detailed at the Lib Dem conference in Bournemouth.

This levy would mean additional tax payment of £2,500 a year on a home valued at £1.5m, or £15,000 a year on a house worth £4m.

The cash would be collected by local councils, with some £1.1bn raised from the estimated 250,000 properties worth £1m-plus that would be covered by the tax.

Whereas in principle the policy proposal to tax the rich seems socially fair, I have some concern re its rational and above all, its implementation.

My first point is whether this is a property tax on houses or real estate in general.

The second is whether it would be cover a person's total real estate assets or each real estate asset separately.

The info that this levy will be collected by local authorities leads me to suppose that it will not cover a person's total real estate - land property.

Now, what if a certain property is valued at £4m but is owned by 4 persons at 25% each (or 20 persons, inherited maybe). Would each person be "allocated" the % value, thus £1m each, thus no levy, or will the property will be taxed as a whole (not per person), thus a 15,000 a year levy to be paid by 4 (ie 3,750 a year for each co-owner)?

IMO, instead of this proposal, a higher levy would be preferable but for properties valued at more than £2-3 million. Because assuming that a person who lives in a house worth more than 1 mil is a) also otherwise rich and b) rich at present, are not 100% valid assumptions. The assumption - correlation IMO becomes more valid the higher the value of the property owned. Some people may live in expensive properties and still be "poor" (in terms of income or even other assets).

Taxes such as the proposed one do exist in other countries, but that does not mean they are "fair tax" or "proportional" or simple to implement or calculate.

Inter alia, the value of a property is after all theoretical unless an action transaction occurs (see eg capital gains tax, when the two values come from actual transaction, one when the asset is bought and then when it is sold).

IMO the best way (policy-wise) to tax the rich is on their revenues, be they from work, profits, dividends, etc etc. not on assets. Taxes on assets are a sort of retro-active tax on past revenues (that were used to purchase a property) or a retro-active increase in the inheritance tax (if they were inherited).


  1. I like your idea on taxing revenues. The whole inheritance tax idea in Britain is really unjust. Value of a property *is* theoretical, and the more current the tax can be made, e.g. on 'windfall' profits, the better.

  2. Actually, I did not say that some level of inheritance tax per se is unjust, what I said was that said levy would "act" as a retro-active tax on revenues (used to buy the property) or extra retro-active inheritance tax (if the taxed property was inherited). As policy analysis, above all it is the "retro-active" effect that I note in the effect on the proposed levy, as proposed.


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