From The Independent:
Older people affected by the Liberal Democrats’ proposed “mansion tax” could have payments deferred until after death if they are unwilling to pay up during their retirement, Nick Clegg has suggested.
Good. That's always KLN #1 and you need an answer to that. The roll-up deferment option is not perfect solution, but it's the least imperfect.
... the caller explained that his home in the up-market St John’s Wood had “sky-rocketed” in value since he bought it.
He said: “I earn a reasonable salary. I do not earn as much as Mr Clegg but I’m happy with what I earn, but no way could I afford to buy a house now for anything like £5m." He said he would face a £30,000 annual payment under the tax, which he could not afford and which would take his total tax rate to 78 per cent. “My only option would be to sell the house my family and I have lived in for 20 years and withdraw my children from school,” he told the Deputy Prime Minister.
Mr Clegg agreed that John would indeed be better off if he moved out. He said: “I’m obviously not urging you on selling your home but if you were, as your children get older and so on, to decide to sell your home, you would be millions of pounds better off... That’s one thing which I don’t know whether you’re prepared to do anyway.”
John retorted: “It’s my home and I have to move out of the area.”
That's a tricky one, politically, there are infinite variations on the retort and Clegg appears to have gone for a middle of the road one.
The more extreme retort would be: "For fuck's sake, man, any couple on above-median wages is paying £30,000 a year in various taxes (check the figures here), and what do they get for it? The privilege of spending half their net income on the mortgage on a semi-detached somewhere; you pay £30,000 a year and get to live in 'desirable' St Johns Wood."
Or possibly, if you've had time to check on Rightmove: "For fuck's sake, man, you can get a perfectly decent 4-bed house in St Johns Wood for less than £2 million, there's no need for your children to change schools - by the way, you'll get into trouble with the authorities if you just withdraw your children from school, as a good parent I hope you know that - and that still leaves you with a handsome cash lump sum of well over £2 million. And you're complaining?"
Or possibly: "For fuck's sake, you Home-Owner-Ist. It's your kind who have engineered things so that a whole generation is priced out of the area in which they grew up. Do you imagine that your children will be able to afford to buy in the same street as they grew up?"
But politicians get into trouble if they say things like that. I don't think they're allowed to say "For fuck's sake."
The other valuable lesson to learn here is that people hate transitions. Quite realistically, if they did introduce a Mansion Tax, people like "John" would end up moving. If the rate is nudged up in future, people like "John" will be complaining all over again, that they are now cruelly forced to trade down to a humble £1 million home in the less desirable part of St Johns Wood etc.
So actually, it is better to go for broke and start with a fairly full-on LVT (which on a £5 million house would be £100,000 a year or more) and make it clear that over the next five or ten years, all other taxes are going to be phased out and the LVT rate bumped up accordingly. "John" has to do his sums carefully, the same as every tenant or mortgage borrower, and trade down to whatever frees up enough cash to enable him to pay [a large chunk of] the LVT on his next house for the rest of his working life and he is, politically, out of the picture.
So for example, if we knew that in five or ten year's time LVT would be (say) about 6% of what houses sell for now, "John" could settle for a £1 million home, spend £2 million on an annuity to pay the LVT for the rest of his life and still have £2 million play money.
Friday, 22 February 2013
From The Independent:
My latest blogpost: Nick Clegg learns a few valuable lessonsTweet this! Posted by Mark Wadsworth at 18:56