A recurring wealth tax is a description that has been used to describe The Government’s speculative Mansion Tax which would primarily affect London and the South East. We understand the need to raise more revenue for the exchequer and this may well do it. However many are asset richbut cash poor and thus this may produce an undue hardship on all but the ultra-high net worth. Most middle-class families, and Tory grass root voters, already incur many costs and do not seek to burden the economy with child care, school fees, medical care etc... as they pay for a private service. A large and recurring property tax may have the effect of pushing these families into using the state systems, thus creating more costs for the government. It will also reduce household disposable income which means less spending and potential shrinking of UK PLC’s economy growth. It will also dampen VAT receipts.
This proposed tax will also damage the value of the housing stock - as each expensive (and we don’t know what the threshold is or the tax rate thereon) property may be subject to an annual tax in addition to the day to day costs of maintaining the property. We see more people pushed into the rental market, where rents may rise depending on where the payment obligation lies - on the person residing in the property or the Owner.
This has a two fold effect - it makes their Properties difficult to re- mortgage as the value will be lower and it will increase the LTV (loan to value ratio) in existing mortgaged properties potentially forcing banks to set aside more capital against each loan. This may have an effect on their Tier 1 capital ratios.
A high transaction tax and now a potential recurring wealth tax on property, begs the Question: have the Tories lost their way already?