2nd March 2013
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.