From 2012 to 2014 I spent a lot of time writing and talking about the threat of a mansion tax, a policy that was originally proposed by the Liberal Democrats and soon adopted by Labour in opposition.  

In two separate papers for the Centre for Policy Studies, I concluded that it wouldn’t be a great revenue raiser, would be costly and difficult to administer and would unfairly hit the equity-rich and income-poor, most notably older homeowners. Conscious of likely accusations of bias at the time, I was at pains to look at the data and back up my assertions by referencing as much reliable data as I could lay my hands on.  

I was not disappointed. I remember well watching Ed Balls tell Andrew Marr that people such as those at Savills would, of course, be against a mansion tax. At that point, perhaps naively, I felt I had won the intellectual argument. The proposal was put firmly on the back-burner.

Instead, in December 2014 George Osborne counteracted the calls for a mansion tax by overhauling stamp duty. At a stroke, he cut the liability for 98 per cent of the market and increased it for the top 2 per cent. The weak case for a mansion tax had been weakened further.

Since then stamp duty has remained the government’s fiscal weapon of choice, whether that be by imposing a further 3 per cent surcharge for buyers of additional homes or providing a relief for first-time buyers. Both had a political imperative.

Such a political imperative is harder to argue in calls to cut stamp duty at the top end of the market. Instead, those calls have been pegged to the proposition that current rates of stamp duty at the top end of the market have been excessive and counterproductive. The hard data suggests this is a moot point.

Earlier this month HMRC released the latest quarterly stamp duty numbers. It showed that in 2019, a year of significant political uncertainty, there were 17,900 purchases of property worth more than £1m, exactly the same number as were recorded in 2014 (despite the fact that Scotland and Wales are now excluded from the numbers). The difference, of course, is that in 2019 the transactions bore a significantly higher rate of stamp duty, especially as 7,200 of them were subject to the 3 per cent additional homes surcharge.

So whichever way you cut it, stamp duty receipts from this end of the market have risen, becoming a substantial revenue raiser. And that has been the stumbling block for reform. At a time of significant spending commitments, how do you cut stamp duty at the top end on a revenue neutral basis?

To put that into context, last summer we looked at various options to reform stamp duty given Boris Johnson’s leadership pitch to abolish SDLT below £500k and return the top rate of SDLT to 7 per cent. Our conclusion was that the first element would cost the Treasury £2bn and the second could put at risk up to a further £2bn in revenue.

This proposal did not appear in the Conservative party manifesto, perhaps due to the difficulty of delivering it in a revenue-neutral way. 

The suggestion at the weekend that mansion tax would be the quid pro quo for a cut in stamp duty further reflects this.  

Renewed talk of a mansion tax will be enough to make some buyers cautious, while the hope of a cut to stamp duty could cause others to wait until after the March Budget. The irony is that this could mean the Treasury forgoes what could have been a bumper harvest of SDLT receipts in the first quarter.

Where does all of that leave us?  

All of the problems with a mansion tax put forward in 2012 still stand. It also appears to remain unpopular among the Tory party faithful. I would wager it is unlikely to see the light of day.  

But the fact that it has even been discussed highlights how difficult it will be to cut stamp duty in the current environment. It is instead a reminder that a stamp duty cut at the top end of the market, which would be welcomed by buyers, could have unintended consequences.

It is also a reminder that, given the market has largely adjusted to an increased stamp duty burden over the past five years, it is most probably a case of better the devil you know.

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