Brokers have dismissed Labour proposals to introduce a mansion tax in the UK as “ill thought out” and “bonkers”.
Under Labour, homeowners living in properties valued at between £2m and £3m would have to pay £3,000 a year. For homes valued at over £3m the levy would increase substantially, with the Institute for Fiscal Studies estimating owners of such properties would be hit with a tax bill of about £10,000 a year under the plans.
Foreign owners of high-value UK properties would face an even higher tax charge although the figure has not been disclosed.
Shadow chancellor Ed Balls also indicated homeowners with expensive properties who earned less than £42,000 a year would be able to defer the charge until their property was sold.
In all, Labour says it hopes to raise about £1.2bn through the mansion tax but brokers have condemned the plan and predicted the levy would fall far short of its target.
John Charcol senior technical manager Ray Boulger says: “The idea of raising more tax from people in high-value properties is definitely sensible but the way Ed Balls is trying to do it is completely bonkers.
“It is interesting that even the LibDems have moved away from the idea of a mansion tax and accepted the much more sensible idea of having extra council tax bands.”
‘Clutching at straws’
Start Financial Services manager Tom Cleary says Labour is “clutching at straws” with its latest proposals for reform.
“This is just PR fluff,” he says. “It isn’t fair because a lot of people will not have paid £2m for their properties. They may be pensioners who have lived there for years or they may have inherited their property.
“If you have paid that kind of money for your property, the chances are you can afford £3,000 or £10,000 a year but there has to be a starting point that says only if you purchase a home above £2m next year, for example, you should qualify for the tax. You can’t just sweep up everyone living in a home that is valued today at above £2m.”
Clayton Hulme Partnership director Chris Hulme adds: “Labour seems to be trying to hit those people in the property market who are deemed by the general public to be making too much money.
“It’s a populist thing – on the eve of the election, Labour is trying to grab as many votes as possible or it will clearly struggle.”
Private Finance mortgage consultant Simon Marsh says: “It is fair to say Ed Ball’s proposed mansion tax has failed to impress on either side of the fence.”
Currently, the Government hands out grants to each local authority, yet Labour hopes to raise extra tax revenues through its proposals.
Brokers argue introducing higher council tax bands would generate more revenue for local authorities and therefore reduce the grants needed from central Government.
Marsh says: “Looking at initial calculations, the proposal could fail to achieve the £1.2bn in funds it aims to raise while also serving to effectively charge a highly inflated stamp duty or inheritance tax for the “asset rich, cash poor” homeowners.
“The proposed changes gloss over the bigger issue of an antiquated council tax system that would be better placed for change and allow councils to access funds without
imposing this levy.”
Boulger adds: “If local authorities got more revenue from council tax, the Government could adjust the grants it pays to each authority, reducing the need for this ill thought-out policy that appears to have been scribbled on the back of an envelope. We’re just playing with figures here.
“They say they want to raise £1.2bn for the NHS on the back of this but we have no idea how many owners will defer the payment.
“If you can defer if you’re on £42,000 or less a year and live in a £2m to £3m property, presumably those in the higher bands will be able to defer if they are earning, say, £65,000.
“That would be logical although I don’t imagine much logic has been applied here at all.”