Why tax mansions and not some other asset?

 In Rachel's shambolic budget she introduced a mansion tax - a further tax of £2,500 per year on properties worth more than £2M and £7,500 for homes worth more than £5M.

I was reading the letters section in the Guardian where people were justifying this move.  People were complaining about their stretched budgets. For example someone with a £250k house earning £70k per year was saying how hard things were and that the rich should pay more.  The irony is by Labours definition this person was rich so in fact they would be the one's who should pay more tax.

It became clear from reading the letters that this is not really about taxation and really about punishing the "rich".  There was clear anger which was directed at the rich rather than the culprits of the problem - government.  The man on the street believes their is unfairness and that is caused by the rich and not the government. 

The top 1% pay 29% of all tax and the top 10% pay 60% of all tax. So our £70k example is in the top 5% of earner  but admittedly they didn't have a mansion!! 

With the recent benefits freebies there are examples of non working families receiving in excess of £70k and with the child benefit changes, there are 18,000 households which will receive a further £14,054 in tax free cash !!

OK I get Rachel needed to raise more tax to fund her latest disasters.  I am annoyed she gave £15 BILLION in benefits handouts yet in real terms reduced Defence spending at exactly the time when Putin is saying he's ready for war with Europe.  Our munitions stores are depleted as a result of supporting Ukraine.  The money should have been spent on Defence not handouts. 

So returning to council tax - in my local area, the council tax band H is £4,435 per year so this would increase a mansion council tax to £11,935 per year.  

Some farmers will doubtless fall into the mansion tax trap.  Although farms are normally considered non residential, if they have diversified into holiday cottages,  horse stabling etc then there's a serious risk that they are exposed to the mansion tax.

The argument about council tax is that it's to fund local services such as street lighting, bin collection, policing etc.  There are no SLAs for these services.  For example the residents of Birmingham can't elect to reduce their council tax because the council hasnt emptied their bins this year because they are on strike. The council are still taking the money but not providing the service. If I lived there I would be starting a class action against the council for failure to provide the contractual services.

So the argument for the Mansion tax is not really about raising money for services - it's about punishing the wealthy.  It's an immovable asset which the government knows where it is. If it doesnt move then tax it.

There are already numerous anomalies in the property taxation system.  I have a holiday property which is rented out on AirBnB.  The council tax is £1,400.  Because it's a "business" (the treatment of holiday accomodation is no longer considered a business after Jeremy Hunt's budget), it is subject to Business Rates and the rateable value is £4,200 so with relief it's £2,100.  So it's higher than the council tax with the added benefit that there's now no longer bin collection which means I have to pay a further£1,500 for private refuse collection. So in real terms it's 3x the price. Simply because it's a business.

I also have to pay a mandatory levy tax as well called a BID (Business Improvement District). I can't say I've seen any improvements for this levy. They are supposed to clean the streets more - I usually go and pick up the litter myself - holiday makers leave a negative review if my street is full of rubbish. 

Similarly if this was a second home the local council will double the council tax so it would be £2,800 per year.

I can kind of understand taxation on a asset which generates revenue (albeit the tax grab happens at various stages eg stamp duty on purchase, taxation on profits, capital gains on disposal etc).  I fail to understand the targetted tax on the mansion which is not a revenue generating asset but a liability.  It's someone's home.

Why doesnt the government tax other static assets? 

Why not tax Matthew Rycroft, former permanent secretary at the Home Office who has a civil servant pension pot valued at £2.51 million?  Or any of the hundreds of other civil servants who have pension pots in excess of £2M.  The tax payer has paid for this lavish gold plated pension pot so why not tax it?

These are assets. Why not tax them instead of mansions?

I can just hear the argument against this "Hey - that's his pension - that would be unfair".

I can't see the difference "Hey - that's their home where they have to live - that would be unfair".

What if you had £2M in the bank - why not introduce a tax on cash in the bank? 

Conceptually there's very little difference. The reason is one of behaviour.

If the government introduced a tax of £2,500 on any bank deposits over £2M then it would result in capital flight.  I suspect suddenly this money would be converted to gold. This money would cease to be in the UK for much longer or at least visible to HMRC. 

Cash is a very liquid asset so easy to move around.   If businesses were subject to this tax rule it would start driving investment behaviour ie relocate the business to other jurisdictions or move the money into overseas bank accounts.

Mansions are very illiquid assets. You cant move them easily so are therefore easy to tax. I suspect in the long term it will drive down home ownership.  

Looking at my local area it's already had an impact.  In millionaires row suddenly 20% of the mansions are up for sale. With such a large pool of high end properties suddenly up for sale when normally the available pool for sale  is very small -  I fully expect prices to fall.  Excess supply with reduced demand. Economic theory says what will happen.  Why are all these properties suddenly up for sale?  Either these "rich" are more cash strapped and this is the final straw or these people are leaving the country.

I suspect they are selling up to leave and move abroad - somewhere more tax friendly.

Ultimately this is eroding the social contract.  The argument is if you work hard, you can buy your own home.  The conservative mantra of home ownership is being attacked.  The young struggle to afford to buy a home and even if they do then HMRC and Rachel start rubbing their hands thinking what new taxes they can inflict.   

The problem with taxation is that once the principle is established what's to say it won't be abused.  If the price of mansions falls to £1M.  Will the threshold also fall to £1M? Pretty soon everybody is paying the mansion tax.

 It does make me wonder whether the real purpose of digital ID is not to stop illegal immigrants but to know where people are so it's easier to extract the pound of flesh tax.....

So a mansion tax is really to distract the general public to make them think the rich will pay more and somehow that's more fair.  The reality is the whole tax system is unfair. There's virtually zero accountability on wasteful government spend.  Take Quangos for example - they spend £394 BILLION per year of tax payers money.  No accounts. No audits.  No nothing.  A bottomless pit of wasteful spend. Is that fair on the British tax payer?