Mansion tax - lib dems or Vince Cable at least

[new mother]

Does anyone know anything about this? From what I have read, it would be a disaster for London as property prices are so much higher than the rest of the country plus I don't like the idea of yet another Govt database containing information that will, no doubt, be misused in some way.

[Marmora Man]

I suspect trolling activity.

Forget property prices and other EDF inflamatory triggers. Just consider the basic illogicality.

Houses and other assets are purchased by people using their post tax income.

Taxing the value of the asset is a second tax and inherently unfair. It is a typical Lib Dem concept - not thought through and easily avoided by the truly rich (who could probably register their homes as part of a larger property portfolio and simply rent them to themselves).

Why houses - why not cars, jewelry, paintings, shares and other assets. In essence it's a disguised inheritance tax to be paid by the living. What about the rich person who chose not to invest in assets but keeps all cash under the mattress?

Those such as pensioners, those that have seen the value of their houses, purchased maybe 30 years ago, rocket in value and others that may be asset rich but income poor would be hammered.

Vince Cable - the Anti Business Minister.

[Chener Books]

Might be a good idea to read before commenting.

John K

[Marmora Man]

John K - an interesting short read.

The draft policy proposes to make yet more complicated the tax gathering process in this country. It has an underlying theme of envy and a strange obsession with "wealth" and "fairness". No tax system can ever hope to be completely fair ? tinkering and adding complexity would, almost certainly, make a tax system more prone to anomalies, gaming and avoidance. It is most unlikely to make the system more fair. Despite Vince Cable's & Nick Clegg's pronouncements "wealth", of itself, is not morally wrong nor does possession of wealth, necessarily, impose a duty to share. I would contend that oppressive tax regimes reduce the likelihood of the wealthy behaving in a philanthropic fashion.

In the days when Lib Dems could never hope to become a part of government this sort of utopian daydream was fine - now they have had a taste of the realities of government I would have hoped that some common sense would have, by now, impacted on their fantasies.

A few quotes:

?Local authorities to receive directly a hypothecated share of local residents? and workers? income tax and national insurance receipts as a progression towards a locally-determined income tax?

?An appropriately trained set of assessors would be needed, as well as an appropriate framework for them to operate within?

?Those who can afford to pay should make a greater contribution?

?Liberal Democrats believe that we need to balance taxes on earnings, profits and consumption with measures that include wealth?

?there is the need to have a clear and stable equalisation system to shift resources from the wealthiest to the neediest areas?

To my mind, all goverments should have as their ambition an aim to reduce complexity in the tax system. Personally, I would favour a flat rate tax - easy to understand, easy to implement, arguably fair and with the added bonus of enabling the average citizen to complete their tax return in under an hour. However, I'm open to persuasion about other systems - providing they are simple and easy to comprehend.

Using the tax system / process itself to promote societal fairness is not a good idea - using the taxes raised to promote fairness and equality is another matter entirely.

[StraferJack]

that sounds like..... most rich people I know.

[Marmora Man]

Strafer - I'll expand the point.

Most Lib Dems appear to be obsessed with fairness of outcomes, envious of those that have acquired wealth and desire to redistribute that wealth. More fair minded people would be campaigning for equality of opportunity not equality of outcomes. Punitive taxes on the wealthy raise little in absolute terms, penalise success and stifle ambition.

Spending taxes raised in a wise fashion to ensure that everyone, or more practically in this imperfect world, the majority are equipped to make a success (financially and in many other ways) is a more sensible approach.

[LadyDeliah]

I want land reform!

[new mother]

Why do you mention trolling, MM? I read about it yesterday and am concerned about it. I don't know much about it and fear that the coalition is trailing it in advance of producing, perhaps, a watered down version. It seems to me to tax again the people who work and try to build up assets (like me!) while attempting to nailthe very rich. Property worth GBP 1mm covers a lot of middle class housing. They should go for, instead, the big bankers and venture capitlaists who get "carry" of millions paid as a capital gain at 28pc. they should also go for the vey rich who buy houses in london via a company and pay 0.5pc stamp duty on a share not property transfer, while the rest of us struggle to fund the 4 or 5pc.

[Marmora Man]

nm - I suspected trolling because obsessing about house prices is a classic EDF trigger and is not a sensible part of a political debate.

Your subsequent points are somewhat better focussed.

Let's see where this one goes.

[Undisputedtruth]

Reforming the council tax is seen as a political hot potato and vote loser. Let the Lib Dems debate the issue. It's not as if they are popular enough these days to win the next general election.

[new mother]

This would be more than an alternative way of funding local services - rates, council tax, poll tax, whatever. it would be a massive capital amount payable every year for those living in a house worth 1mm plus. Result? These houses would start changing hands more frequently, which may or may not be desirable in itself, but this "inheritance tax on the living" will definitely result in families that do not consider themselves rich by any means subsidising the super rich who can easily affordto contribute more to the nation's finances at difficult times. Simply because there are more of the former.

Actually, is it legal? Can you whack a tax on an asset someone already owns? Answer yes, they do it all the time if I think about it. North sea oil profits for one thing.

[Loz]

new mother Wrote:

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> Actually, is it legal? Can you whack a tax on an

> asset someone already owns? Answer yes, they do it

> all the time if I think about it. North sea oil

> profits for one thing.

That's not quite the same - you are taxing the profit that the asset generates (not the value of the asset) and only at a time that such profit is realised. I can't think of any tax on an asset. The only on that comes close is the poll tax, but that is levied on the value of a house, but it is not (necessarily) applied to the owner of the asset (i.e. tenants in a house pay it, not the owner).

[edhistory]

> I can't think of any tax on an asset.

Inheritance tax?

John K

[Loz]

That is still as the asset is transferred to a new owner, which is also done on capital gains tax and stamp duty. Not an actual tax on a person's asset.

[edhistory]

This I find difficult to get to grips with. I need to try and break it down.

a] A tax that can only be levied because an asset exists is not a tax on the asset.

b] A tax that is levied on the value of an asset or the increase in value of of an asset when it is transfered is not a tax on the asset but a tax on the value of the asset or the increase in value of the asset.

c] The Road Fund Licence charge is a tax on an asset.

John K

[Marmora Man]

John K - your confusion illustrates the basic problem of the Lib Dem concept.

A couple of examples:

Two children become orphans because their high earning parents die in a car crash. As a result they inherit a ?2m mansion (mortgage paid off due to insurance) and its contents. These are assets - some inheritance tax is due. Once paid these two young children, with no viable income, have an ongoing annual tax liability of ?20,000 on the mansion. Is this logical or fair?

Or

An elderly widow of a retired civil servant - has lived in the same house all her life - moving into it as a young bride in 1950. The house then was a modest, bomb damaged, country vicarage - now after a lifetime of care and the ravages of inflation it is worth in excess of ?2m. She has just a widow's pension of ?100 a week. Under Lib Dem policy she would be liable for a ?20,000 tax every year on her property. Is this logical or fair?

[LadyDeliah]

Sell the mansion and downsize, or share it with others to pay the tax.

Why should they be subsidised to stay in a property that is too big for them?

If it's good enough for council tenants to be forced to downsize, why isn't the same principle ok for people in mansions who can't pay property tax?

[Huguenot]

In what way are they being subsidized? The property belongs to them.

The council tenants are being subsidized - they're living on charity. The contributors to that charity are entitled to ask that it is invested in the most appropriate way.

[mockney piers]

LD, you seem obsessed about Land reform.

Have you ever expanded on how you want it reformed?

I get calls for it in agrarian economies dominated by massively wealthy landowners where the majority of the population are tenant farmers in theory but little more than serfs in practice.

We live in a primarily service led economy with an industrial base, where most people can't even keep a spider-plant going, where farming has become quite specialised and by and large do okay (when they're not being bullied by the supermarkets).

What do you think this will do for our society as a whole or are you just saying rich landowners should give you some land?

[Loz]

Apart from the issue of liquidity, the issue is that taxation of income/gain is fair and easy to calculate.

The easiest way to think of this is the 'how would it affect me'. What are most people's assets: house, car, house contents, savings. Now you might own an housing asset worth, say, ?400k. Would you be OK with a tax on that value, even though you are also mortgaged to the eyebrows? How about your old car - let's say ?4000 worth - that gets taxed as well.

And how do you value an asset? Are the contents of my house worth thousands (which is what it would cost me to replace) or practically nothing (which is what I could sell them for?). It's easy to value an asset when you buy/sell it, not so easy when it just sitting there.

Now LadyD will be along any moment and say something like 'but we will make those sorts of personal assets exempt', but the issues of value for other assets are still the same, plus once you start creating exemptions, in come the accountants to exploit loopholes.

As for taxing savings... well, disincentivising saving is not a great idea, especially when it comes to most people's biggest saving asset: their pension. Are we really going to chip away at people's pension pot?

Finally consider this: I work for a company in the FTSE250, worth well over ?1B at market capitalisation. I'm just your average employee on a normal salary. Yet, I probably personally own more assets than my company does. Why? Because it leases *everything*.

[new mother]

Loz, thanks. You immediately fixed my woolly logic. The point is that no cash has been realised and the "profit" is a paper one. How can people be expected to pay for a non existent profit? Furthermore, what happens in a downturn? Does the govt give back the cash when the value of the property dips.

No, off pissing it certainly is that many of my friends geared themselves to the hilt 20 years ago and now live in mega houses the rest of us cannot afford but that is the extent of it. Off pissing it stays. There is nothing to be done about it. They made a smart longsighted decision.

[Senor Chevalier]

Nothing smart about the babyboomers and the houses they bought in the 80s. They got lucky. The application of cheap debt has created an asset bubble and the current generation are frozen out - they have to earn a preposterous amount to even think about getting on the ladder and they are being taxed to the hilt every step of the way. Whereas the previous generation paid lower taxes and set off the mortgage interest when they bought the cheap houses which are now worth a fortune.

A lot of this was in the Inequality thread already. I don't see the issue with forcing people to downsize if they are lucky enough to be sat on big assets. Otherwise we are just saying that hard work is taxed whereas good luck isn't - WTF?

Equally people sat in large houses could be able to accrue tax charges by gradually transfering their asset ownership to the state on the proviso that they are not evicted until death. The accrued tax can then be knocked off the value of the estate prior to calculating any inheritance tax.

[Loz]

> Otherwise we are just saying that hard work is taxed whereas good luck isn't - WTF?

But, assuming you mean the Lib Dems ?1m mansion tax (rather than general assets), why should someone who purchased a house in London for 900K in 2009 that rises to ?1.1m be taxed, yet someone in Cambridge who bought for ?300k in 1995 and rises to ?900k not be taxed? Why tax some 'good luck' and not other? And where does 'good luck' start and smart purchasing cease?

And again, how are we going to adjudge the value of houses on an annual basis. For instance, a house with four bedrooms is worth a lot less if you convert the smallest bedroom to a bathroom. Or knock a stud wall down to convert two bedrooms to one.

Anyway, it would be a brave politician who decided that the papers covering a constant stream of pensioners being forced from their homes is really going to endear them to the electorate.

[zeban]

Senor Chevalier Wrote:

-------------------------------------------------------

> Nothing smart about the babyboomers and the houses

> they bought in the 80s. They got lucky. The

> application of cheap debt has created an asset

> bubble and the current generation are frozen out -

> they have to earn a preposterous amount to even

> think about getting on the ladder and they are

> being taxed to the hilt every step of the way.

> Whereas the previous generation paid lower taxes

Absolutely agree. Finally some bleeding sense on this thread!

> and set off the mortgage interest when they bought

> the cheap houses which are now worth a fortune.

>

> A lot of this was in the Inequality thread

> already. I don't see the issue with forcing

> people to downsize if they are lucky enough to be

> sat on big assets. Otherwise we are just saying

> that hard work is taxed whereas good luck isn't -

> WTF?

>

> Equally people sat in large houses could be able

> to accrue tax charges by gradually transfering

> their asset ownership to the state on the proviso

> that they are not evicted until death. The

> accrued tax can then be knocked off the value of

> the estate prior to calculating any inheritance

> tax.

[LadyDeliah]

Rental income from council houses goes straight to central government and a proportion is given back to councils, so in actual fact council tenants are subsidising the population at large, not the other way around.

Also if something is not taxed when it should be, then that is a subsidy. Just as the zero tax status of private schools is a subsidy.