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In recent years, United Kingdom politicians—predominantly members of the Liberal Democrat and Labour parties—have proposed the implementation of a mansion tax, a yearly levy on homes valued over £2 million, as a way of funding the country’s National Health Service.

According to the Labour party’s most recent proposal, this controversial tax would be progressive in nature, charging owners a cut based on the total value of their property.

More specifically, according to an article in International Business Times, “the tax would mean owners of properties worth £2m-£2.5m would pay £2,000 per year; £2.5m-£3m would pay £3,500; £3m-£4m paying £5,000; and properties worth £4m and over would pay £9,000 a year.”

This latest proposal would also defer payment for low income families that own one of these properties until it is sold.

The Labour Party has estimated that such type of levy could potentially raise £1.2 billion in additional tax revenues each year.

Obviously, rich people like former Arsenal centre-back Sol Campbell, singer Myleene Klass and actress Angelina Jolie staunchly oppose this sort of charge, while political opponents claim it would harm future investment in the country and be burdensome to administer.

Following the Labour Party’s big defeat in the 2015 UK General Election, the mansion tax’s proponents have given up—at least for now—on its implementation.

Let’s look at some of the main drawbacks of this kind of levy.

Drawbacks of the Mansion Tax

Bad for Foreign Investment in Real Estate: Industry experts suggest that implementing a mansion tax would lead to a decrease in overseas investments in UK properties. High net worth individuals wanting to move their businesses and residences to London might think twice before making the move if they have to cough up an additional few thousand pounds each year in taxes.

Biggest Impact on London’s Homeowners: Analysts claim that London would be hard-hit by this type of levy considering the high cost of property in the city. Many modest homes in London might be subjected to taxation under this program, affecting families that might not have the means to pay a yearly fee for their properties.

According to an in-depth analysis by The Economist, nearly 81 percent of the properties that surpass this £2 million threshold are in London.

“The high price of London properties is down to their desirability and scarcity; economists measure wealth with prices, not floorspace. An occupant of a London house—whenever they bought it—is making use of one of society’s prized assets,” The Economist says.

Source: Land Registry & The Economist

Unfairly Targets “Income Poor, Equity Rich” People: According to a study run by the Centre for Policy Studies (CPS), a mansion tax “would unfairly target the income poor, equity rich (31% of properties in London worth over £2 million have been in the same ownership for over 10 years, 15% over 20 years.  Price growth has been +89% in the past 10 years and 426% in the past 20 years.)”

Generally speaking, the same study concludes the mansion tax “would unfairly penalise those on low incomes living in certain parts of Britain where property happened to have substantially increased in value during the recent property boom or, in the case of elderly owners, during their period of ownership.”

Complicated to Price Properties: Analysts claim it would be a logistical nightmare to accurately value every single property that might be subjected to the mansion tax. Likewise with administering and collecting the tax.

The aforementioned CPS study states that the problem with valuation is threefold: 1) “there is little comparable transactional evidence”; 2) “an individual property’s value is determined by the interaction of many different, often intangible, attributes,” and; 3) “there would also be a high likelihood of legal dispute and calls for revaluation.”

Additionally, a report by estate agents Savills found that roughly 120 thousand homeowners would need to spend approximately £4,800 to revalue their properties to find out whether or not they have to pay the mansion tax. That adds up to £110 million in revaluations!

Question: Are there any positives to the implementation of a mansion tax? Has your jurisdiction had success with this type of tax?