Would a mansion tax be legal?

 Speculation is rife on a mansion tax or at least some re-adjustment of the council tax bands.

The mansion tax "proposal" seems to be a property tax on the value of the property in the form of a levy. Say your property is worth £2M then you pay 1% tax levy on the value of your property each year so this is basically an additional tax on the OWNER of £2,000 per year.  It is not the OCCUPIER that is paying it but the OWNER.

So this is effectively a LEASEHOLD charge in the same way you have to pay ground rent or other LEASEHOLD charges.  The governement has suddenly become the SUPERIOR LANDLORD to your supposed FREEHOLD asset.

The speculation goes on to say that if there are equity rich, cash poor OWNERS of "mansions" then your can defer payment of the levy until death or the property is disposed of.

This sounds like the government is going to establish a legal CHARGE on your property so they are priority creditor against your property.

So is this legal?

I suspect not.

The Human Right's Act states: "The state cannot interfere with your peaceful enjoyment of your possessions without a valid, lawful reason" nor "You cannot be deprived of your possessions unless it is for the public interest and is provided for by law"

Clearly this is an absolute violation of "The state cannot interfere with your peaceful enjoyment of your possessions without a valid, lawful reason".  

The second one is more questionable "You cannot be deprived of your possessions [or part of your possessions] unless it is for the public interest and is provided for by law"

Does the "and" mean both conditions must be met?  Is it in the public interest that your property is stolen?  Well team Rachel and Kier have certainly f*cked the economy so it is in the public interest to sort this out however I suspect the intent of this wording was to capture assets obtained through fraud or more specifically assets obtained through things like benefits fraud.

The second condition "provided for by law" is in reality meaningless since the government sets the law and can therefore change anything so it is legal. 

If this is in Rachel's forthcoming budget of Doom then it will almost certainly have unintended consequences.

Will we see a flurry of mansions being turned into flats or apartments so that the component value is less than the £2M threshold?

What happens to property which is are Multi Unit Freehold Blocks.  I own a block of apartments which are under a single FREEHOLD title.  The value of this is less than £2M so it's not an immediate concern however doubtless there are people out there that own the same legal structure as me and would fall foul of this even though the component value would be less than £2M.

Laws should not discriminate so therefore many councils own blocks of flats which will definitely be worth more than £2M - they therefore should have to pay the levy just like Joe Public. I suspect T2K will not accept this and embrace yet more double standards.

Does this apply to commercial property as well as residential?

The most obvious outcome is this will cause a property crash.  Property prices around the £2M mark will fall so they are below the £2M threshold. There would also be a disincentive for property prices to rise since the levy is a percentage of the property value.  If the property doubles in value the annual levy will also double.  

In order to avoid large farms falling foul of the levy we will also see attempts to split the property.  For example arable land will be separate title to the farm home, milking sheds (which cost north of £1M) will also be on separate titles. What a mess....

So for fun let's create a scenario to show how stupid this idea is.  Let's say I'm the owner of a £2M mansion which I own outright.  I decide to remortgage the property at 100% of it's value.  I move the £2M released equity abroad and follow the money and become non resident for 20 years. At this point it may be a £2M "mansion" but there is ZERO EQUITY.   I elect to make the levy charge be added to the property. I die 20 years later and the property has not increased in value - it's still worth £2M because no-one wants a property subject to the levy. The bank repossesses the property however at this point they have 20 years worth of levy's which I havent paid. So they have 20x£2,000 worth of debt to the government = £40k plus any interest which may have been added. So the mortgage company is out of pocket.  I have lived out the UK for 20 years so there's no claim against any overseas estate.

Clearly creditors are not stupid unlike our wonderful politicians and therefore they will not accept this kind of scenario.   It will therefore be more difficult to borrow money against property and equity release will absolutely become much harder given the term could be 20 years by which time even modest terraces houses up north could cost £2M !

So the introduction of the levy will decrease liquidity in the property market.  

A decrease in liquidity makes it harder to buy or sell assets quickly without a significant loss in value, leading to increased price volatility, wider bid-ask spreads, higher transaction costs, and potential financial distress for individuals, businesses, or entire markets.  Therefore it's likely this property will no longer be worth £2M but considerably less - it therefore begs the question whether there's an appeal process saying that the property is no longer worth £2M and therefore the levy should not apply.

Similarly I would expect a surge in appeals for a downgrading in council tax bands should the mansion tax be enacted through council tax.

Finally the problem with taxes is they tend to be hard-coded.  Once they exist there's always a temptation to tinker.  For example reduce the threshold from £2M to £1M or to leave the threshold at £2M for the next 100 years to pretty much ensure everyone ends up falling foul of the property levy as a result of fiscal drag.

Time to leave this country?