Mansion tax weighing on the minds of buyers and sellers

2nd March 2013

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A Mansion tax might only be at the discussion – or argument – stage for politicians, but property buyers and sellers already seem to be taking the proposed new tax very seriously writes Jill Insley.

Estate and buying agents are reporting that renewed interest in the tax by both Labour and Liberal Democrats in the last few weeks is causing nervousness. Roarie Scarisbrick, partner of independent buying agents Property Vision, said that although there had been a busy start to the year in London, “the age old debate about mansion taxes or wealth taxes has bubbled to the surface yet again, and it has already affected confidence.  Wary buyers are using it as a negotiating tool and many sellers are citing it as a reason for selling-up”.

Ed Mead, director of estate agency Douglas & Gordon, says the possible implementation of mansion tax is just one of several measures affecting the attractiveness of high value properties, especially those held within companies. In the 2012 budget, the Chancellor introduced a 15 per cent rate of stamp duty for residential property worth more than £2m bought through a company, and announced plans for an annual charge of £15,000 on company-held properties worth £2m to £5m, with higher charges for more expensive properties. This charge will be introduced in April, along with a capital gains tax charge on the disposal of properties by non-UK companies.

“The issue of the £2m threshold is valid from a stamp duty, annual levy, capital gains tax and mansion tax perspective – so levels of concern have been high for a while now,” Mead said. He added that surveyors are seeing a boom in valuations for properties close to or above the £2m threshold.

The mansion tax – an annual charge on properties worth more than £2m –  was first mooted by Vince Cable, but the idea was converted by the coalition government into a 7 per cent rate of stamp duty for house sales over £2m and implemented following the 2012 budget. Chancellor George Osborne again dismissed the idea of introducing the mansion tax in the 2012 Autumn Statement, describing the proposal as expensive and intrusive.

But Ed Miliband, leader of the Labour party brought the idea back to life last month, suggesting that if Labour is elected at the next election it will use money raised by the mansion tax to reintroduce the 10p income tax band scrapped by Gordon Brown. The proposal now in play is that homeowners should pay one per cent of the value over £2m, producing estimated revenue of £1bn a year according to the Centre for Policy Studies.

While Miliband’s plans will no doubt appeal to those on lower incomes, experts in the property industry point out that many of those likely to be affected by the tax  may be asset rich but are cash poor. They have become property millionaires simply by living in their homes for a long time.

Lucian Cook, director of Savills residential research, said: “High value homes already contribute disproportionately to the total tax take and an annual levy risks hurting those who are asset rich through established ownership but cash poor.

“Although the tax (as discussed to date), at 1% of the value over £2m is relatively low in the £2m to 2.5m price band, ranging from £1,000 to £5,000 a year, it would doubtless create a value threshold in the market at the £2m mark.  Above this level, it seems inevitable that a mansion tax would put strain on finances – particularly for families and older home owners – and may force owners to downsize, with the greatest pressure expected in the domestically-owned £3-5m price bracket.”

Some 70,000 properties are believed to worth more than £2m, the vast majority of which are in London and the South East.

One woman writing to the Independent pointed out how one of her relatives inadvertently ended up owning a home in north London worth nearly £1m simply by inheriting it in the 1950s and living there ever since.

“I know proponents are only suggesting a “mansion tax” on houses worth £2m and over, but there must be many people whose houses have grown in value to that sum regardless of their income or actions – especially if they live in London… I am astonished at Ed Miliband’s sudden support for this tax. Is he saying that the elderly should sell their homes and move away from their friends and familiar surroundings in order to pay it?”

Frank Nash, partner with chartered accountants Blick Rothenberg, says the alternative payment options suggested by supporters of the tax are also likely to prove unacceptable. Withdrawing money from the value of their home through equity release is expensive, with interest rates around 7 per cent. Alternatively homeowners might be allowed to roll up the tax they owe until death, when it can be claimed from the proceeds of the sale of the home. But this means the government could end up waiting 20 or 30 years for its money: hardly appealing given its need to raise revenue.

Nor should homeowners expect handy tax loopholes to help them out. Nash says:  “We don’t have much information yet about how it will work, but because the tax is based on the value of bricks and mortar, it will be very difficult to get out of paying it.”

And don’t assume you are safe just because you live in a home worth less than £2m. The Liberal Democrats are now considering a mansion “super-tax”, extending their original proposal to include all properties owned by an individual, including  buy to let property and holiday homes, making it much easier to reach that £2m threshold.

28 thoughts on “Mansion tax weighing on the minds of buyers and sellers”

  1. Joe says:

    Great blog Shaun as ever – what I wonder though, is if this boom can actually last through to the election?

    1. forbin says:

      good god , if it peters out I wonder what the next trick will be ?

      negative interest rates?

      What desparate means can we think off that they could do next ?

      Well PPI worked well , so how about all that mortgage mis-selling back to 80’s – be a rather nifty way of pumping cash into the economy

      will we be making anything ? no , dont be silly ! we’re made on the backs of our housing stock – may it ever increase in value amen!

      Forbin,

      1. Anonymous says:

        They are going to implement a more explicit policy:

        1. If you are under 35 you must give 10K to people over 60

        2. If you cannot pay 10K you and your partner must carry someone over 60 on a shield like Vitalstatistix in Asterix.

        http://images.wikia.com/asterix/images/3/34/Vitalstatistix.PNG

        Osborne will argue it’s progressive because presently the youth hand over far more than 10K. People over 60 will vote for it because the youth are all scum.

        1. Paul C says:

          Epic notion Progrock. The sub serviancy of it, and as you say all youth are scum so they should continue to wonder at the beneficial treatment and extensive property assets of the greying boomers. Long may the status quo continue……..

          1. Anonymous says:

            Don’t worry, it will so long as we have the hive-mind plus mob rule (sorry I meant democracy).

    2. Anonymous says:

      Hi Joe

      I have wondered that myself. What we can say is that there is momentum to drive is to the end of the summer and that 2014 will be flattered by the way that they do the economic growth maths. What I mean by that is they published an average for 2013 of 1.7% rather than the year on year 2.7/8% so 2014 was given a push start.

      The bit that may turn out to be doubtful is 2015 but I suspect any dips will be met with more policy moves don’t you?

  2. Pavlaki says:

    Shaun, the N.E of England has a very high proportion of the working population employed by the state and salaries are flat at best. There is no shortage of properties and the relative level of immigration is very low. Prices are therefore fairly flat but again this differs by area and property type. In the better areas of Newcastle, in Morpeth and Hexham ( two very desirable sattelite towns) property prices are on the up. Nearby Ashington and less desirable parts of Tyneside are falling.

    I totally agree that low interest rates have caused consumers to reign in spending. The ‘grey pound’ is a big part of the economy and it is precisely this group that have been badly hit by poor interest on their savings. The are big purchasers of new vehicles, home improvements and the service industry through discretionary spending. Until rates improve then this will remain subdued.

    On a totally different subject – I wonder what your thoughts are on the invincible Euro? Despite attempts to talk it down, poor recent economic figs and a drop in inflation rate it continues to hold ground. Is there something going on we don’t tend to notice?

    1. Eric says:

      As a holder of a ‘grey pound’ I think it’s poor savings interest and fear in equal measure that hold my discretionary spending in check.
      It was a PR mistake to call 0.5% an “emergency” rate; because I just can’t shake the thought that the emergency is not over.

    2. Anonymous says:

      Hi Pavlaki

      I followed the Euro consumer inflation release which for those who missed it was the 0.5% I had expected after the Spanish numbers I discussed on Friday. This gave Euro bears a potential chance to push it lower ahead of the ECB but instead it pushed above 1.38 versus the US Dollar and above 142 Yen.

      For it to drop I think that the ECB will have to ease in some way as for the moment dips are seen as buying opportunities. So until something changes it remains “The Only Way Is Up” by Yazz….

    3. Howard says:

      Yes…downright Anglo-Saxon prejudice!

  3. dutch says:

    http://www.rightmove.co.uk/house-prices-in-my-area/marketTrendsTotalPropertiesSoldAndAveragePrice.html?searchLocation=ne5&sellersPriceGuide=Update+Results
    rightmove’s market trends data is insightful.Many urban areas outside Londinium have been flat for a decade.

    1. dutch says:

      just to add,check the cities like Nottingham,Leicester,Brimingham etc.All flat over a decade on the whole then compare with SW3 .

      Bubble moi?

    2. Anonymous says:

      In the previous housing boom, London led the way and eventually the rest of the country followed. Deja vu ?

    3. Anonymous says:

      Hi Dutch

      I agree that there are areas with completely different patterns. But even if we put Londonistan and the South East to one side we see this being reported by the ONS.

      “Excluding London and the South East, UK house prices increased by 3.8% in the 12 months to January 2014.”

      Before the Funding for Lending Scheme and now Help To Buy programmes began I was arguing that we needed some gentle falls in house prices to make them more affordable to 1st time buyers. So my argument is that we have taken a wrong turn..

  4. forbin says:

    Hello Shaun,

    Quite frankly its working , pumping up all this housing, I mean just think who’s buying in London – the Russians!

    when “General” Hague finally gets his war , or atleast sanctions, then its wammo ! lets take those inflated properties away and bob’s your uncle!

    more housing to pass onto the next dupes!!

    maybe too simplistic…. maybe..

    Just because its possible to inflate this way doesn’t mean you should – but try telling that to someone whos job ( ie pollies ) is on the line !

    Forbin

    Popcorn futures are uncertain …

    1. forbin says:

      and oh hey guys – where were you last Friday ? seemed me and Shaun were on our own……

      😉

      F.

      1. Anonymous says:

        Hi Forbin,

        I didn’t have anything useful to add to that discussion

        1. Pavlaki says:

          Yes we are all here every day but not always with a comment. Wouldn’t miss it if at all possible!

    2. Anonymous says:

      Given the private eye report on UK shell companies, I doubt targetted sanctions would be effective. I assume that a Russian Oligarch could obtain another passport with an alternate name not on the sanctions list. British bureaucrats would have difficulty tracking or proving real ownership.

    3. Anonymous says:

      Hi Forbin

      Actually popcorn futures are likely to be under a fair bit of upward price pressure. From Bloomberg today.

      “Corn futures for May delivery climbed 2 percent to settle at $5.02 a bushel at 1:15 p.m. on theChicago Board of Trade. That leaves the grain 22 percent above a settlement low of $4.12 on Jan. 9., meeting the common definition of a bull market.”

      You had 2013 in your favour (not that my toffee popcorn saw it…) but 2014 is going the other way so far.

  5. Major Fault says:

    2007 all over again .. Time to cash in the Chips .. Gamblers should know when to walk away from the UK property table .. It will all end in tears .. Come back to the table in 2016 when prices drop 30% .. The old standards will have to return to have a sensible economy .. 5% interest rates and maximum 4 times salary for mortgage. Now see what average price per region that will bring.

    1. Anonymous says:

      Yeah I’m considering taking my NS&I out. I bet when it goes awry they will find some way of not paying in real terms.

    2. Anonymous says:

      Hi Major Fault and welcome to my part of the blogosphere.

      What I wonder is what we will do when the next slow down arrives. Should it arrive in a year or two then we will not be able to respond with interest-rate cuts unless we are willing to test and go below zero.

      The main driver recently has been the rise of the value of the pound £.

      1. Anonymous says:

        …….which for us expats is a highly desirable, if not long term, outcome. Long live the GBP

    3. therrawbuzzin says:

      Bit early to cash in, there are the grotesque, if not corrupt, profits from a recent privatisation to keep the pot boiling, at least in London.
      £1.5bn.

  6. theyenguy says:

    You write, From the Bank of England this morning. Total lending to individuals increased by £2.3 billion in February, compared to the average monthly increase of £2.0 billion over the previous six months.

    Much of that lending went to purchase UK Small Cap Stocks, EWUS, as is seen in the ongoing Yahoo Finance Chart of EWUS …. http://tinyurl.com/ov76tut

  7. Anonymous says:

    Hi ExpatInBG

    There always were problems with the GDP methodology and the new changes based on the ESA 10 system which for example boosted US GDP by ~3% only make it worse I think. So its usefulness as a measure of economic health anywhere is on the decline.

  8. Anonymous says:

    Using shadow stats as a reference, it seems the US RPI has also been gerrymandered by ~3% since the 1990s and more since the 1980s.

    So real US GDP numbers are, to quote AC/DC “all screwed up”

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