Killer Arguments Against LVT. Not (340)

Here's a heroic diagonal comparison from The Telegraph:

Labour's mansion tax could leave pensioners facing death taxes worth almost half the value of their property, an analysis by Treasury aides has found...

It's not the pensioners facing the tax bill, it is their heirs.

An analysis by a Treasury aide found that a family home bought in London 30 years ago for £220,000 is now worth £2 million.

That's a handsome unearned windfall capital gain of about £1,600,000 after inflation. And a £220,000 house 30 years ago was a bloody expensive house even then.

The aide said that if Labour bases its mansion tax on Mr Osborne's [Annual Tax on Enveloped Dwellings] scheme, the home would face an annual levy of £15,400, costing a total of £308,000 if deferred for 20 years.

Well don't defer it then!

The mansion tax bill would be on top of a £560,000 inheritance tax, leaving families with an effective death tax rate worth 43 per cent of the value of their property...

Maths mistake: assuming the accrued Mansion Tax is an allowable deduction and rates and allowances don't change, the IHT would be £416,800, but never mind.

Logic mistake: it's not a death tax. It's a lifetime tax. The longer you live, the more it gets.

Logic mistake: what's to stop the parents inviting their heirs to pay the tax for them, I'm sure you can have a binding contract, so a sole heir chips in £15,400 a year for a more or less guaranteed return of £1,460,000 (£2 million less IHT). That's an IRR of 8%, handsome. I'd be happy to pay it; the IRR would be much more if the pensioners die earlier.

And let's do a proper like-for-like comparison: What if our cunning pensioners had been earning a load of income which they forgot to declare for income tax (a quasi deferment option)? The income tax (plus penalties and interest) is due whenever HMRC catch up with them, if they are still alive, then that is income tax, if HMRC have to collect it out of the estate, it is still income tax. That does not turn income tax into a 'death tax'.

Warming to my theme, what happens if somebody had had £1,600,000 in earned but undeclared income over the last 30 years and HMRC caught up with them just before they die, what would the tax bill on that be? Pretty much 100% once you take interest and penalties into account.

What if somebody has been putting £50,000 a year to one side out of fair and square earned income, all subject to PAYE, over the last 30 years, total £1,500,000? How much tax and NIC would he have paid/borne? Something like half that, £750,000?

"Mansion tax is catastrophic and deeply out of tough and will hit voters in parts of the country where Labour needs to make an impact. It sends a very clear signal that we are anti-aspirational and will hit people who are asset rich and cash poor."

What do we aspire to? Making massive windfall gains at everybody else's expense.

So, starting from today, if the government gave people a choice:

a) We can keep house prices low and stable, or

b) We can drive up the price of your house by 400% over the next 30 years but as a quid pro quo we will start charging you a tax of 0.8% of the final value in 30 years' time,

I'd vote for A (I have children, FFS) but I am sure that many people would vote for B. They still end up a lot better off. And who's to say that the Telegraph's Poor Widows wouldn't have voted for it 30 years ago?
---------------------
UPDATE, re Ben Jamin's comment.

Those calculations above just look at the effective rate of tax on the unearned capital gain (about 30% - 40%, depending on assumptions) which is not excessive.

This still leaves the annual site-only rental value of about £50,000 a year entirely untaxed. Think about it, if a young couple moves to London and rents, what can they get for £15,400 a year? Not much, is what. Everybody expects them to cough up out of their hard-earned and highly taxed wages with nothing to show at the end of it.