The Government’s impending ‘Mansion Tax’ has been dressed up in rather more respectable clothes as the High Value Council Tax Surcharge.
It arrives in April 2028 and will apply to properties in England valued at £2 million or more. I can’t tell you how much we are looking forward to it!
At first glance it sounds wonderfully simple: £2,500 a year for a £2m–£2.5m property, £3,500 for £2.5m–£3.5m, £5,000 for £3.5m–£5m and £7,500 for anything above £5m.
Simple, that is, until someone must decide what your house is actually worth? And therein lies the fun (if you can call it that).
A house is not a tin of baked beans
Let’s put it this way, a house is not a tin of baked beans with a price printed on the label. Two apparently identical houses can differ enormously in value because one has been beautifully refurbished, one has a garden worth having, one has a swimming pool, one has a leaking roof, and one has a wife who has spent £400,000 on the kitchen.
The Government proposes to use comparable sales and other information to establish the value. But the higher up the market you go, the fewer comparable sales there are. Indeed, research has highlighted the problem that many expensive properties have no recent Land Registry sale against which a reliable valuation can be checked (ft.com).
As if this matter is not complicated enough, some sales of the higher value properties (we call this the ‘uber end’) involve the sale of shares in the underlying company which owns the asset and this is not recorded on the Land Registry figures but nonetheless, is an independent sale.
Only canny estate agents such as us, know this information. Usually this is the preserve of international purchasers who can save a significant part of the Stamp Duty. For instance, a property of £30million would attract an SDLT (Stamp Duty Land Tax) rate of 19% if the asset were sold, i.e. £5.7m. But, as a share acquisition it would only be 0.5% i.e. £150,000, and the headline saving would be £5.55m which is not ‘a spit in the ocean.’
Thresholds, the real absurdity
Then comes the real absurdity, the thresholds. Imagine your house is valued at £2.49 million. You are in the £2,500 band, but the Government’s valuer thinks it is worth £2.51 million. Congratulations! Your house has somehow become £20,000 more valuable and your tax bill has jumped by £1,000.
At £3.49 million, the same problem occurs. At £4.99 million, again. And at £5 million, another cliff edge appears.
An irresistible incentive
This creates an irresistible incentive for homeowners to challenge valuations, and an equally irresistible incentive for valuers to defend them. The OBR expects around one in five affected homeowners to appeal. With roughly 165,000 properties expected to be caught initially, that suggests something in the region of 33,000 appeals. If the OBR’s estimate that about 40% of appeals succeed proves accurate, more than 13,000 valuations could ultimately be overturned or altered.
Not a minor administrative nuisance
That is not a minor administrative nuisance; it is an entirely new industry bedecked with all manner of problems.
Surveyors will be employed. Valuers will be instructed. Lawyers will become involved. Estate agents will produce comparable evidence. Tribunals will have to adjudicate, and homeowners will spend money proving that their supposedly £2.51 million house is actually worth £2.49 million.
The Government will have created a bureaucratic machine costing millions to collect hundreds of millions and all this will be on the brink of the next election.
A sinister comedy
And now we come to the most contentious question of all – access to the front door.
Supposedly, the valuation authorities have powers, subject to safeguards, to seek access to properties where an internal inspection is necessary. Normally the owner can refuse an initial request. But where access is ultimately authorised, obstruction can attract penalties. Current proposals contemplate fines of up to £500 in certain circumstances. A tribunal safeguard is involved before compulsory entry can normally be exercised where consent has been refused, (thetimes.com).
The Government insists that inspections will be rare and that most valuations can be conducted without entering the property. How very reassuring… but they would say this, wouldn’t they?
The State is effectively saying, we think your home may be worth more than £2 million, and therefore we may need to look inside it to decide how much tax you owe. It is difficult not to see the sinister comedy in this, isn’t it?
Not yet ‘High Street North Korea’
The point is the uncomfortable principle that one’s front door has represented one of the greatest impervious boundaries between citizen and State, at least in a liberal and tolerant country like Britain. I know that some complain about lack of freedom, but we are not in ‘High Street North Korea’, quite yet.
Tax inspectors entering private homes is therefore a civil-liberties issue, even when the tax itself is entirely lawful, and all this administrative theatre is being imposed on the populace to raise what is remarkably little money (buttons, I would argue), in the context of government finances.
The Treasury expects the surcharge to raise roughly £430 million a year, although the OBR’s published costing puts the figure at around £400 million in 2029–30, just in time for a change of government (gov.uk).
For perspective, that is a useful sum, but hardly transformational even for the cash-strapped Treasury.
Mindless and needless bureaucracy
So, we have a tax which will affect fewer than 1% of English properties, require the valuation of some of the most difficult properties in the country to value, generate potentially tens of thousands of disputes, create a new burden on surveyors and tribunals, and occasionally require the State to contemplate crossing the threshold of someone’s home, all for roughly £400–£430 million a year.
The Mansion Tax may, therefore, prove to be less a tax on mansions and more a mansion-sized exercise in mindless and needless bureaucracy.
And when the first £2.49 million house goes to the tribunal to prove that it is not a £2.51 million house, we will discover the great paradox of modern taxation: sometimes the most expensive thing about collecting a tax is proving that somebody owes it.
The Chancellor and the PM need to answer this very straightforward question which I would like to put to them, “Are taxes a revenue raising device or are they an extension of spiteful class war policies?”
Reading the foregoing, I am inclined to believe that the latter is uppermost in their minds, not the former. This is where socialistic dogma gets in the way of pragmatism in order to garner votes from the left-wing zealots!
“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
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