Mansion tax: Taxing property does not always work

The justification for taxing property rather than people is that buildings don?t move: the taxman always knows where they are. Well, before Britain resurrects plans for a mansion tax it ought to look at Ireland?s latest levy on property. Half the country is refusing to pay.

The immobility of real estate has made property a tempting base to tax. Ships and gambling can be moved offshore, but not bricks and mortar. If people don?t pay, the state can claim the assets. That?s why the UK chancellor has put a 7 per cent tax on property purchases above ?2m and is planning an annual levy on homes whose ownership (rather than the asset) has been moved abroad.

The main mistake of the UK?s poll tax in the 1980s was to tax people rather than apply town-hall rates to their property. As people consume the councils? services, a tax based on the number of residents rather than the value of the home made sense: but for ease of collection a tax on heads was disastrous. People move, houses don?t. Homeowners don?t risk their main asset for the sake of a levy of less than 1% of its value: transient people see the same charge of say, ?500 or ?1000, as sufficiently draconian to justify refusal to pay.

So Ireland might have thought it was on safe ground in introducing a tax of 100 euros on each of the country?s 1.6m households - a token interim measure until it introduces a value-based property tax. Except that half the households have refused to pay. The 31 March deadline passed with 800,000 challenging the government to fine them rather than pay voluntarily.

The nation that devised the original boycott - when the Irish Land League rebelled against the English Captain Boycott?s demands from tenants in 1880 - has chosen to boycott this latest property tax.

It may simply be that the Irish are taxed-out. The country is back in recession and, to meet the IMF?s rescue conditions, the government has already imposed 24bn euro of tax rises and spending cuts on the island?s small population and is planning another 9bn euro.

Perhaps the British will still pay up when asked to pay more on their property. But the UK chancellor should bear in mind that many of the people buying ?2m-plus homes through offshore vehicles are offshore themselves. They too may decide to boycott the UK government?s raid on their property.

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