The idea of a mansion tax re-emerged last week, with both Labour and the Liberal Democrats pushing for the proposals to be implemented in one form or another.
Chancellor George Osborne dismissed the mansion tax in the Autumn Statement as “expensive”, “intrusive” and “difficult”.
But Labour party leader Ed Miliband has resurrected the idea, saying if Labour were elected, it would reintroduce the 10p income tax rate scrapped under his predecessor Gordon Brown, funded by a mansion tax
on properties valued at £2m or more.
Not to be outdone, the LibDems are considering a mansion “super-tax”, which would extend their original proposal to second homes and buy-to-let investments. Under the plans, outlined in a taxation policy consul-tation last week, a property portfolio with a total value of £2m or more would incur an annual 1 per cent levy.
Some are concerned that, if implemented, sellers and buyers will push down property values to avoid moving into an unfavourable tax band.
London & Country head of communications David Hollingworth says: “Those in and around that banding will put the brakes on price hikes. Just as with stamp duty, if you were hitting those barriers, people will resist going much beyond.”
The Government raised stamp duty on homes worth £2m from 5 per cent to 7 per cent as part of last year’s Budget in March.
Savills director of research Lucian Cook says the added prospect of a mansion tax is both unfair and unworkable.
He says: “The high-value end of the market was already making a disproportionately high contribution to the total tax take even before last year’s Budget.
“Coming on top of the additional taxes introduced less than a year ago, talk of a mansion tax will be very unwelcome.
“Not only would such a tax be costly to administer, our analysis suggests that it would not be a big revenue-raiser.”
As a LibDem mansion tax would be levied annually, it would work differently to property taxes such as stamp duty which are levied at the point of sale or purchase. Enness Private Clients director Hugh Wade-Jones says: “People know where they stand in the case of stamp duty. Changing the goalposts is very unfair.”
There are also concerns the mansion tax would contradict new measures aimed at reducing the number of homes bought through company structures.
In addition to the stamp duty hike for £2m-plus homes, the March Budget introduced a blanket 15 per cent stamp duty on properties above £2m bought through corporate vehicles although this is not retrospective.
Homes bought through corporate structures worth over £2m will also be hit by an annual residential property tax, starting at £15,000 for homes worth between £2m and £5m, moving up to £140,000 for homes worth over £20m.
Property fund and asset managers London Central Portfolio chief executive Naomi Heaton says: “Those already holding property in a corporate vehicle will now be tempted to keep it there. You have to pay this ARPT which will be less than a 1 per cent mansion tax. Between £5m and £10m, the ARPT is £28,000 but on a £10m property, depending on where the threshold is finalised, you would be paying £100,000 in mansion tax. Suddenly, you might as well hold
your homes through companies after all.”
There will be less temptation to put newly bought property into a corporate structure though as it would take around 11-12 years to make back the cost of the extra stamp duty.