Mansion Tax Analysis in Excel - Labour's nationalisation of London homes

Today, we'll use Excel to look at the impact of Labour's Proposal for Mansion Tax for properties over 2 million,and demonstrate some interesting findings.

The Labour party is proposing a tax on properties over 2 million. They label this a "Mansion Tax". The idea is that wealth is redistributed from the "Mansion" owners, and used to fund the government's overspending.

This proposal is still to be finalised, but they're looking at roughly 1% of the value over 2 million. (Just above the value of the houses of the people proposing the tax)

When you buy a home, you pay stamp duty. Make no mistake, this is a Wealth Tax.

Here are the stamp duty bands:

This means for a property just over 2 million, you pay £140,000 in stamp duty. If you have 0 cash, and a 50% loan to value, you've just given 14% of your post-purchase wealth to the government!

So what about the logistical problems of a "Mansion Tax":
- how do you value a property ?
   - is it the value today, or the value after the tax is implemented and there's no market for 2+ million properties
- What about if you bought the property and have no cash, should you be forced out of your home to avoid paying a tax, and incur further stamp duty that you've already paid ?

Anyone who lives in London knows that it is incredibly expensive to buy a property in London, and most people who live and work there take on huge amounts of debt to be able to do so. A lot of residential homes in London are owned by companies that have been setup to avoid stamp duty. Could efforts be better spent going after those who evaded stamp duty in the first place ?

Based on recently published house sales data, here's the somewhat shocking analysis on who would be paying this tax:

This is a tax on LONDON, not mansions!!

NOTE: this is not a lot of data, but it's the most recent, and gives an idea
 

Analysing the most recent month's land registry sales data:

A more balanced way to view the data is to look at the % of properties sold within an area that are paying the tax, but still, London is hit hard:

Think "Mansion",  What comes into your head ?

A detached house, semi, terraced house or a flat ?

Outside London, the numbers look as you might expect... 95% of property sales that would have fallen into the "Mansion" tax definition are detached houses, and no flats.

Now look at the numbers from London... 32% are flats !  How is a flat a mansion ?  Only 14% are detached.

The final part of the analysis is this... HMRC earns roughly 6.5 billion per year in stamp duty.

If the introduction of a "Mansion" tax causes a reduction in prices of just 9%, ALL gains from the tax are wiped out.. A 9% fall or more is perfectly possible. If it's a 30% fall as some agents predict, the loss would be 3.2 billion just in stamp duty alone, not including any costs of losing talent and job-makers abroad.

Some Points:
1. This is not a "Mansion tax", as a most of the properties caught are not mansions. 58% of properties from recent land registry data are Terraced houses or flats.

2. Stamp Duty is already captures what this tax is trying to capture

3. This is a "Tax on London" as demonstrated by the fact that a MASSIVE 80% of people paying live in London
  - If the government is targetting London, London should take a leaf out Scotland's book, and ask to separate from the UK

4. There will be large implications for anyone considering adding value to their properties... If by creating extra space you incur a massive tax bill for the priviledge, people will not spend their money on developing with consequences for the construction industry

5. Why not more aggressively pursue the stamp duty avoiders ? There was some effort to do this by introducing 15% stamp duty for companies buying property, but it only applies to the first purchase. Better still, how about those corporations that have been setup in Luxembourg, and pay no UK tax.

5. There is no consideration for how wealthy you are... suppose I have a 2 million pound house, and a 2.5 million pound mortgage... I am poor, not wealthy.

6. The implementation of a mansion tax should be in relation to how wealthy you are relative to those around you. This would be a fair implementation which the current proposal isn't. However, coming up with a way of implementing this would be a challenge.

7. To get around the logistical problems, the implementation of the tax would have be on the purchase price of the property, and not the "current value" which could be anything.
- this avoids punishing people who bought a while back, they aren't wealthy... they have one house, and it's value has gone up. That's not their fault.

8. I can't see how it can make any money... in fact, I'd be surprised if the net result was not a loss !

9. This tax goes against the fundamentals of freehold property ownership - You own it !... This tax is proposing to take that away, and instead of owning your property outright, the state is claiming a piece for themselves. Labour's proposal is nothing short of a plan to partially nationalise London's homes !

10. Rental yields in London are very low... 2% maybe. A tax of 1% could add 50% to rent for high end properties putting the dream of buying a property even further out of reach of tenants.

11. If a Londoner buys 1 house and wants to live in it, they are 1 house wealthy. It doesn't matter what happens to the £ price of it. Forget this paper stuff (called £) that can be printed at will...  1 house is worth 1 house. Measured in "houses" (a much better currency than £), they are no wealthier than when they bought the house regardless of what happens to the price. All this talk of "unearned income" is nonsense when you measure the "income" in houses not "£".

Londoners - Oppose this tax... if you disagree with the state nationalising your home.

Nick