The Mansion Tax

I've been raging all morning about the proposed mansion tax. I can't understand for the life of me how anyone can think it is a sensible - or, to use the word that I hate, fair - policy.

Imagine you did very well in business, and earned £10m. You might do it in a year in a bank; or you might help build a business which created a couple of thousand jobs over a decade. Let's assume, to keep the numbers simple, that you earned it in a year and you were paid it in salary. After income tax and NIC, you would be left with roughly £4m.

If you invested the whole lot in a house, then again, keeping the numbers simple and assuming 5% stamp duty and no other fees, you would be able to buy a house worth £3.8m and the balance would be paid in tax. Anyone who lives in west London knows that you wouldn't actually get a mansion there for £3.8m - in One Hyde Park, I think you'd get a three-bed flat - but I'm sure it would be very nice; and yes, it could be a castle in Scotland with thousands of acres. What you buy is academic really: the point is that you buy what suits you and your family with what is left of the large amount you earned, on which you had paid all your dues.

Let's also assume you do this by the age of 40, which is not an unreasonable assumption; and that you therefore live in the house, or one that is comparable to it, for the next fifty years.

If a mansion tax were introduced at 1% of the value of your property, and that property went up by a very marginal 3% a year in value, then over the rest of your life, without earning a bean, you would have to fork out just over £4,450,000 in mansion tax.

That would mean that the total amount of tax you had paid on the £10m you earned in the first place would be £10,650,000 - more than you had actually earned. On what basis is that sensible?

You might think that if you earned £10m over any relatively short period - a year or ten - you might think you could go and do something else with your life other than the job that brought you your wealth. You might want to go and work for a charity, or write a book; or even just put your feet up for a bit. But all this tax would do is force people who had made money to keep their nose to the grindstone, trying to eke out the same earnings that they peaked at. The idea that you could make money and, say, go and become a teacher to give something back to other people would be fanciful. Unless you said, having earned a lot money, that you were not going to do anything with that money in terms of improving your lifestyle and living in a larger house, and instead you were just going to put it in the bank. In that instance, you would lose a percentage of whatever your subsequent gain was, which is fair enough - without it eating into your capital.

Can anyone explain to me what makes it a good idea?