Last week the Shadow Chancellor, Ed Balls, attempted to provide more details on Labour’s plan to tax family homes in London. But his announcement spectacularly backfired as it raised more questions than it answered, providing more uncertainty for homeowners, families, and the property market, as we head towards the General Election.
In an opinion column for the Evening Standard Ed Ball wrote about his alarming “Mansion Tax” plan – which is in reality a homes tax, as many £2million properties in London include family homes and even flats. In the article, Balls claimed the Homes Tax threshold of £2m will be indexed-linked and rise with national house price averages. The tax will have a banded structure, with at least three bands and the lowest band charged at £3,000 per year – however no details were provided for the higher bands. There will be no centralised system of valuation; instead owners will be able to submit a self-valuation to HMRC. Basic rate income tax payers will have the right to defer (but are not exempt from) the tax until the property "changes hands"- essentially making it a form of inheritance tax.
Chelsea and Fulham MP, Greg Hands, who has long campaigned against the Homes Tax, believes, along with the likes of The Taxpayers Alliance, that the plans leave worrying questions that Ed Balls is unable or unwilling to answer. Greg poses the following to Mr Balls:
1. What bands and how much? You said in your article that those in homes valued between £2m and £3m will have to pay an extra £3,000 a year. But what would the other bands be on more expensive properties, and how much would be payable in each band?
2. How many homes will drop out? Having to pay a Homes Tax will mean buyers won’t pay as much for a home as they would have done. Have you estimated the impact on house prices of the Homes Tax, and how many homes would drop down a band or fall out entirely because of the tax?
3. How much less will be collected from Stamp Duty? A Homes Tax will reduce house prices, which means the Treasury won’t collect as much in taxes such as Stamp Duty Land Tax and Inheritance Tax. Have you estimated the impact that lower prices will have on overall revenues from Stamp Duty, Inheritance Tax and other taxes?
4. How many widows and widowers will defer? Have you estimated the impact on revenues from allowing lower-income homeowners, such as widows, to defer payment?
5. How will the “death tax” trap affect the housing market? Some low income homeowners will avoid moving so they don’t have to pay their deferred Homes Tax when they sell. Have you estimated the impact on the housing market from the “death tax” trap of deferred tax bills building up, keeping larger homes out of the market and restricting associated economic activity?
6. Will it really raise £1.2 billion? Even without modelling for deferment, the impact on prices of reducing the number of homes and the loss of other revenues such as Stamp Duty and Inheritance Tax, estimates from the Tax Payers Alliance, assuming charges ranging from £3,000 to £30,000 a year, say it would yield only £830 million. How have you calculated your estimates?
7. How will you avoid massive cliff-edges? The Tax Payers Alliance estimates suggest an annual Tax of £14,400 for a home valued at £9.9 million but a £30,000 bill for a home valued at £10 million. That creates a huge cliff edge with a substantial distortionary impact. These amounts will have to be even bigger if the tax is to raise the £1.2 billion you claim, meaning even bigger cliff edges. How will you avoid these cliff edges?
8. What if a future Chancellor freezes thresholds? So many taxes, like Stamp Duty, Inheritance Tax and Income Tax started out as taxes only for the rich. But how will people be sure that a future Chancellor won’t freeze the thresholds and so more and more homes are dragged into the tax by rising prices?
Greg Hands said: “I don’t believe Ed Balls is able to answer any of these important questions. It’s clear from his announcement that this Homes Tax policy is not thought through, potentially chaotic and counter-productive, and damaging.
“It would mean that tens of thousands of homeowners, many in West London, would face a huge additional tax bill of at least £3,000 per year. Many would not be able to afford this if their assets are tied up in their properties, and for those that can’t their families could be hit with giant death taxes.
“I shall continue to fight this unfair and damaging Homes Tax proposal, which unfortunately it seems Labour are determined to introduce if they are given a chance after the next election.”