How to tax mansions without a mansion tax?

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How to tax mansions without introducing a mansion tax? That is the challenge the Treasury is working on at the moment.

As I explained in my last post, George Osborne needs to find some money to spend on the tax cuts demanded by the Tory right and Lib Dems, his own growth initiatives and other diverse political fixes.

He will also want to ensure that he can claim his budget is "fair" by taking more from the rich than the poor.

The chancellor has, though, rejected the Lib Dems' first suggestion about where to get that money: a new tax on "mansions" - ie any property over a certain value - say £1m or £2m - which they claim could raise a billion or two.

The reason is obvious. It would be hugely unpopular with largely Tory voters in the South East, whose homes are, or one day might be, over the threshold.

There are ways, though, to raise tax from mansion owners without a new mansion tax and they are likely to feature in the Budget.

Firstly, the chancellor could deal with the curiosity that a one-bedroom flat in a smart part of central London pays the same council tax as a £20m house.

This would involve introducing new higher council tax bands. It wouldn't raise huge sums and the money would largely go to already well-funded councils but it would be a "fairness" gesture.

Secondly, he could close the loophole which allows many hugely wealthy foreign home buyers to avoid stamp duty by setting up a company to buy property rather than buying it themselves.

On that £20m house you would save £900,000 by paying 0.5% stamp duty instead of 5%.

The Lib Dems' other idea for raising cash - also advocated, incidentally, by the Shadow Chief Secretary Rachel Reeves - is to scrap higher rate pension tax relief.

The chancellor certainly won't do that but the other question being examined in the Treasury is how to raise tax on the pensions of the wealthy (or, if you prefer, reduce tax reliefs) without scrapping higher rate tax relief.

Alistair Darling showed that there were ways. I expect his successor is examining those very closely too.

Nick Robinson Article written by Nick Robinson Nick Robinson Political editor

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