March 30, 2012 10:08 pm

Tax the frivolities, not the properties

If you can afford a Rococo-style copper roof on your dog’s kennel, then you should be able to pay a top-rate tax for it

London’s estate agents were left in a state of high anxiety by new rules brought in by the UK’s recent budget.

George Osborne, the chancellor of the exchequer and a man they thought was their friend, had just sloshed a can of discount cider into the champagne oasis of the capital’s property market. We should no longer use companies to buy houses, he declared. Then, as if that wasn’t enough, Osborne demanded that if we wanted more expensive homes, we should pay more tax.

How could this happen? Londoners, who have seen their properties become “the world’s new gold” during the past four years, were being brutally victimised. Panicked agents warned the capital was in “meltdown”. Rich tax-dodgers, flabbergasted that anyone could be so beastly, would go elsewhere. Within days the British economy would descend into a socialist dystopia.

On the plus side, Osborne probably won some new fans in the rest of the UK, where houses, by and large, have remained houses during the recession. To my mind, though, the chancellor has taken a very circuitous route to his eventual goal of being seen to be taxing excess.

Taxing property wealth is a very crude way of taxing financial frivolity. It presupposes that rich people are using their extra cash to have more fun. A more direct and fairer approach would be a tax not based purely on the value of the house, but on the parts of it that provide the most entertainment but the least practical use.

A parquet-floored gazebo tacked onto the side of a £500,000 suburban semi, for example, is far more ostentatious than someone paying over the odds to live in central London because they want to get home from the office in time to see their children have breakfast.

The British are obsessed with adding costly features to their homes. There could be whole tax bands for add-ons deemed unnecessary. You know the kind of thing: mink-lined aviaries; walk-in truffle larders; waterfalls for revolving roof terraces; rustic helicopter sheds. A levy on making these additions would target much more directly the ills of excess, rather than bluntly taxing the largely uncontrollable, market-driven fluctuations of property value.

Obviously the charges would have to be weighted to reflect the different levels of indulgence – a modest, do-it-yourself pond for the goldfish should incur a lesser tax than a professionally installed Jacuzzi. But the principle would be simple enough: if you can afford to put a Rococo-style copper roof on your dog’s kennel, then you can afford to pay a top-rate tax to do so.

A 90 per cent super tax could be levied against that most pointless and, in Osborne’s words, “morally repugnant” of all unnecessary excesses: the swimming pool.

In the UK there is hardly ever any justification for splurging thousands of pounds on building a swimming pool. Seldom is the weather nice enough to use it. Even if the sun does, miraculously, shine for long enough to make jumping in seem sensible, the pool must be endlessly cleansed of leaves and other flotsam. There is also something particularly vulgar about this kind of aquatic excess. Attaching a swimming pool to an otherwise unassuming house is like people sticking expensive logo rims on the wheels of an otherwise bog-standard car.

Of course, excessive wealth and excessive behaviour are often found in bed together. Stories of London billionaires trying to bribe council surveyors to let them install the platinum-walled elevator they’ve always wanted are not uncommon. Then there was the well-publicised tale of the property tycoon who lobbied to be given permission for a five-car garage under his Kensington home. In such cases, a fair charge would be to tax heavily on every sq ft after the cost of an on-street parking permit threshold has been passed.

The problem, as with any new tax, is that it wouldn’t take long for an industry to spring up to help those who wanted to avoid paying. There would be loopholes. People who wanted swimming pools could circumvent the duty payable by building a kitchen sink large enough to accommodate a diving board.

But the chancellor could still generate plenty for the state coffers. The money could then be usefully redeployed to build hundred-mile long rows of functional houses, each with a kitchen-cum-dining area, living room, two bedrooms and a bathroom.

He would be more popular, too.

Voters don’t despise wealth nearly as much as they do people who behave badly because they posses it. The reality is that a £2m house in London is no longer excessive. A swimming pool, however Indian the summer or record-breaking the spring, always will be.

Ed Hammond is the FT’s property correspondent

More columns at www.ft.com/perspective

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