Mansion tax what’s the fuss?
A flurry of statements by various political parties has firmly brought the issues surrounding mansion tax back into the headlines. The Liberal Democrats first proposed this contentious new property tax four years ago, and the idea has existed ever since, without being approved or disapproved – something that has left some uncertainty at the top end of the property market. At Best Gapp we deal with property for sale in Belgravia and the surrounding areas so this tax is a real concern for many of our clients.
What is Mansion Tax?
Mansion tax is an additional tax levied at high-value properties. The original proposal was to introduce an annual tax of 1 per cent to all properties worth over £2 million – its name referring to the type of properties it would affect. The Tories, their coalition partners, were against this in principle, although in the 2012 budget they did agree a Stamp Duty raise to 7 per cent for all properties in this price bracket. But the issue refuses to go away and, with their eyes firmly on the next general election, Labour and the Lib Dems are outlining their proposals, to widespread criticism.
Labour support the introduction of mansion tax, meaning a coalition between the two parties after 2015 would almost certainly see its introduction. However, as reported by The Telegraph, they offer conflicting accounts over the amount it would raise for the treasury. The Lib Dems claim it would raise an annual levy of £1.7 billion, while Labour suggests the amount would be closer to £2 billion. Research by property experts Knight Frank has caused further confusion by suggesting that, in fact, the tax would raise only £1.3 billion, and to raise Labour’s proposed £2 billion, the threshold would need to be lowered to include all properties worth over £1.25 million.
Is Mansion Tax Fair?
Most commentators are concerned about the fairness of the tax. For a start, it mostly affects London and the southeast with a staggering 86.4 per cent of properties worth over £2 million situated here. Something Knight Frank refers to as an ‘annual service charge on the southeast.’ There are further issues surrounding the increase in property values. Over the last decade, house prices have risen by 69 per cent. If this trend continues, the amount of houses subject to mansion tax would increase drastically to include 775,000 houses within the next 25 years. As reported in the Daily Express, this means that all properties currently worth £540,000 would be liable in the future.
There is also the very real possibility that, should the same family remain in their house for a long time, they will actually end up paying more in taxes than the purchase price of their home; a frightening prospect. The type of homes affected has also come under fire. In London, many properties over the tax threshold are actually flats. In fact, there are more properties with only one bedroom in this price band than there are those with ten. Owners of heritage buildings would also be affected, with concerns raised that they may be unable to maintain their properties with the increase in taxes.
A similar argument has been made for the cash-poor but equity-rich pensioners who live in the southeast. Having paid for their properties through years of hard work, they may be forced to sell simply because they can’t afford the annual tax. The political pressure for some kind of mansion tax is evident, and as parties gear up for the campaigning season, one thing is certain – we haven’t heard the end of this one.
Thank you to Best Gap for this guest post.