Mansion tax madness

The Institute for Fiscal Studies (IFS) recently announced that the UK faces a £64bn hole in its finances by 2015. So belt tightening is clearly not off the cards and our cash strapped government is increasingly looking for alternative sources of revenue. Coalition spats aside, the Mansion tax proposal continues to rear its ugly head whenever money's tight. Trouble is its never done. It would be a bad idea. I will explain why.

The Mansion tax is the brainchild of the Liberal Democrats. Nick Clegg is set to make an announcement today that it could involve a one per cent levy on homes over £2m or increased council tax bands for properties over £2m. The problems are:

• How will such properties be valued? A property in say Chelsea may have been bought in 1950 for X but may now be worth Y. Who will value the property and how?
• The policy will affect asset rich but income poor people (e.g. pensioners) who have seen the value of their homes increase over time.
• The policy could deter a lucrative central London market for prime property. International purchasers could be put off from buying a property once SDLT and a Mansion tax (in whatever form) is introduced.

The Mansion tax policy raises more problems than it solves. Politically it sounds good. Politicians playing to the gallery. In practice- we shall have to wait and see its effect. I remain sceptical.

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