'Mansion tax' - what if you just can't pay it?

[shellinthesea]

My elderly mum lives in a London house worth about 2million. She's been there for over 50 years, and is physically and mentally fragile. There is no way she would EVER want to move, the house and her neighbours are her whole world. She has no spare money - at all. (Neither do I, before anyone suggests this!) How is she supposed to manage this? It's not exactly her fault that the value of the property increased so much since my parents bought it all that time ago.

I also have a friend, also in London. Both parents sadly died in an accident about 15 years ago, and she used her inheritance to buy a family home which has also increased massively in value. It's probably also worth over 2 million now! She's a single mum on a lower income with 3 kids who very happy at their local school and within their community - what's she supposed to do?

It's just not as simple as 'you live in a high-value house, you can obviously afford to pay several grand a year' as RR seems to think. And for anyone who is about to say 'oh tiny violin, their houses are worth two million' - both of these situations are complicated and quite sad in many ways. Neither my mum nor my friend can simply just sell up and move...anyone have any thoughts on this?

If I was to sell a £2 million property I'd be giving a lot of it to family now to avoid inheritance tax. Maybe people will do the same and there will therefore be little financial benefit to the government overall.

LOL

I think the issue many who are commenting on that ‘it’s sad but she will have to move and get £2m’ is: who is going to buy this property for £2m? Has anyone seen what is happening to the property market in this country let alone, London? She will not be able to sell. It’s not that simple. This is a chain reaction that fundamentally makes all worse off in the long run. Short term, helps the poorest, long term (not so long term): even those sort of ok but not really that wealthy won’t be ok and the ones who, like OP’s mother are kind of asset rich but cash poor, won’t even be able to take out what they should have earned through a life time of home investment to pass to their children - what is the actual impact then on the poorest in society longterm if there’s no wealth being put in? Not great. And that’s nothing to say of the emotional stress of moving out of your home after so many years. No matter how much it’s worth, home is home. We are living on streets in London with so much crime, no postcode is safe. Just look at rightmove: properties are staying stagnant for months. It’s not good guys …

I'd not be too keen on selling my house to pay increased taxes which are in part due to a situation caused by lazy fuckers that don't want to work and people that have more kids than they can afford and expect others to pick up the tab.

I could save thousands a year by taking cash payments and not declaring all my earnings as could loads of people in trades/self employment. I choose to pay my share out of principle but my goodwill towards this government is fading fast.

Suck it up and pay you say? No thanks. Get a job or retrain in something that pays better and pay for yourself because I won't be.

Why is the country so skint?
Why are houses worth so much?
Op's mother didn't make the country skint. She also didn't make her home go up in value.
She contributed, she pays rates, she pays tax like everyone else on their investments.

It's unfair that a separate tax is charged on houses which look like regular homes in the suburb and are not at least twenty times more valuable than the average house. Almost everyone will be a millionaire one day.
If there are hundreds needing houses and only one home - the house value becomes inflated.

Housing supply does not meet the requirements.

Governments should not be drastically increasing migration without the affordable housing and infrastructure (health care, schools) to meet their needs.

A big discussion needs having about the preservation of natural habitats, wildlife, parkland, clean waterways and cultural traditions and life styles.

Um, if you are renting a 2m pound plus property, either pay the higher rent or move?

@shellinthesea

I get, it home ownership is something your mother and friend have worked hard to achieve and now a policy could make it unaffordable - if the government can force them to sell by increasing taxes did they ever really own it? Do any of us own what we can be so easily forced to give up? That's what is depressing about this story, that and the gleeful 'tough cheddar' replies.

And if they sell who is going to buy does the family desperate for a 2m house have the money to buy or to take on the mansion tax themselves, probably not. So the property will probably be bought by a landlord.

No - you’ve misunderstood. Inheriting a house does nothing to contribute to GDP - it’s not generating any economic output, it’s just a transfer of existing wealth.

Additionally, rich people getting richer does not contribute to economic growth in the way lifting people out of poverty does. Give an already comfortable 60 year old the proceeds from her 90 year old mother’s £2m estate, and that tends to get squirreled away, or invested (usually meaning high performing overseas stocks). Give an additional £100 per month to a family who are struggling, and that £100 all gets spent straight back into the economy to meet their basic needs - and contributes to growth.

Economies with massive wealth inequality tend not to be very healthy…

Holy crap. I can’t keep saying this. They can just release some equity and stay there! The tax - even decades of it - is a tiny percentage of the overall value of a £2m+ property, and the owners have benefitted from enormous property inflation. It should be taxed as the capital gain that it is.

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Capital gains tax on a property should happen when a property is sold, not before.

The irony is that the middle class lefties who voted Labour and are so eager to levy taxes on other people's wealth are probs going to be among the worst hit.

Genuinely wealthy people are often quite mobile and are already leaving the country in huge numbers. High earners like IT consultants are in a similar situation as they can often work from anywhere. My best mate did this a couple years back. Closed the office, got rid of her staff and is now living somewhere much warmer in a house much bigger than the one she sold to move. She's now building a team of new employees out there and contributing to the economy of that country.

And tradespeople (who already earn on average £10k more than graduates) will just under declare their earnings and take cash in hand payments/buy materials using cash.

The thing is, yes, other people have had these experiences, but they are really poor community planning.

It's not good that people have to move far away from their established communities because they cannot find a place to move to in the right price rage. It's not only bad for the individual. It's a stress to wider society in many ways.

Particularly with the elderly. It makes zero sense to move an older person with an established routine, friends, and supports, away from all of that. It creates more need for other social supports to be provided by the state.

You can flip that around. She doesn't live in "wealth". She lives in a house, the same one she lived in 50 years ago. Which shoe bought with her own money which she and her husband earned.

The fact that it has risen in price is not at all down to anything she has done. It's down to economic forces that have nothing to do with her. It's down to what other people, if she wanted sell, might be willing to pay.

Why should other people, who the house does not belong to, be able to create a situation where the owner can't afford something she bought? Just because they happen to be willing and able to spend a lot.

It's kind of absurd really.

I think this is why it feels unfair to people though.

Someone in this position did afford the bills.

Now, they should of course pay the taxes for the services they use. But here is the thing - for the most part, their services are not more expensive than those of the person next door in a cheaper property.

We expect them to pay proportionally to the value of their house today, which may in no way reflect the value of the house when they bought it. And therefore may not reflect their income.

It's not even that the economy over all has changed, their income has dropped, and that means they have to take their lumps and move as people do from time to time.

It' s the state telling them that they have to pay more proportionally than others.

Ultimately it will always benefit the richer who are empowered by the state to push out others from the communities they decide are attractive.

In her eyes, she’s not ‘sitting on 2 million’

Thats not really how property valuations work.

Again, equity release is the solution here. But I suspect you don’t like the idea of reducing ‘your’ inheritance any more than your DM would want to downsize. Your DM I’m afraid is a perfect example of the kind of entitled that is wrong with this country. She can afford to heat her home, feed herself, live comfortably and pay her taxes. She is choosing not to liquidate any of her assets to fund this. That is very very different from genuine hardship.

Equity release to pay a new tax is unfair if that tax paid is not then deducted from the Capital Gains Tax owed when the house is sold.

A person should be able to leave their legally paid for house to their family. An additional tax could increase so much as to erode the value of the house until it leaves Op's mother giving most of her home, by default, to people on Social Security or to migrant housing.

The OP's mum wont need equity release.

She'll (almost certainly) be able to defer the tax until her death or until she sells.

That might well be available for the OP's friend, too, but the deferral scheme is still in consultation.

On the other hand, as you say "The fact that it has risen in price is not at all down to anything she has done", yet she/her family will benefit when she/they sell it.

The amount can be deferred and taken from your inheritance after her death.

I have truly limited sympathy for either of these situations.

We both work full time, 1 child, and are classed as above average earners.

I don’t WANT to live in my 2 bed anymore that we outgrew years ago, but it’s an extra £1000 a month on mortgage to move to a 3 bed locally.

If someone offered me a mortgage free 2m house for a measly £2500 a year instead f the £12k extra a year I’d pay on my mortgage I’d bite their hand off - there’s much worse problems to have..

I imagine this tax will be deferred by most simply because stamp duty and moving costs will be many years worth’ of mansion tax so downsizing isn’t going to save you money.

This will not result in any meaningful tax receipts for many years. It must be clear to her that her government will not be the beneficiary of this tax so it was done for purely ideological reasons.

What about people in £2m mansions with a £1.5m mortgage?

We also know that these thresholds will never go up and will eventually drag ever more people into it.

She'd prefer her house be worth less? Would she now.

Defer the payment, and if she can't, equity release.

If, in her mind, she's not "sitting on £2m" it won't matter if she has to spend some of it.

Someone with a £1.5m mortgage will absolutely have a couple of grand spare a year. Do you know the kind of income you need to get a mortgage that size? They'll be just fine.

The government doesn't have to wait for taxes to be received to feel the benefit of it. In budgets, and/or for borrowing, revenue is based on when an amount is earned, not when its paid (although the fact that not everyone who owes tax will actually ever pay it is factored in, so its not quite the same as cash-in hand).

The thresholds are tied to inflation.