A proposed tax on high-value homes known as the ‘mansion tax’ has made headlines of late. Though the exact details of this contentious legislation are far from finalised – it’s still managed to provoke a great deal of controversy.
In this guide, we’ll examine the potential impact a mansion tax could have on high-value homeowners and the rationale behind this contentious issue.
Current Secretary of State Vince Cable is often credited with coming up with the concept of a mansion tax. Ahead of the 2012 Budget, he and several other Liberal Democrat politicians revealed that they had been pushing for its inclusion.
In its original state, Cable suggested that the levy be imposed at all properties valued at more than £2 million, which would then be subject to an annual tax rate of 1%.
However, the finalised Budget did not include the mansion tax, with a modified proposal exacting a 7% rate of Stamp Duty Land Tax on homes that were sold for more than £2 million being introduced instead. As opposed to the annual mansion tax, this payment would stand as a one-off, affecting those buying the property.
The controversial proposals refused to be buried however, and saw a resurgence among both Liberal Democrats and eventually the Labour Party.
In 2013, Labour leader Ed Miliband claimed that he would introduce such a tax if elected to government and use the money earned to re-introduce a ten pence tax rate for the UK’s lowest earners.
Although the policy has since then evolved to include clauses that will exclude those who hold high-value properties, but are still relatively cash poor (sometimes referred to as the ‘little old lady clause’) – at its core, Labour’s version remains largely unchanged.
Although we’re highly reluctant to speculate on the outcome of elections, given the lacklustre poll performance of the Lib Dem’s following their tenure as part of the Coalition government (and Conservative unwillingness to introduce such a policy) – it’s not baseless conjecture to suggest that a Labour government coming to power in the 2015 would provide the highest chances of a mansion tax coming into effect.
Whether or not it’ll come into play in its current format or undergo a swathe of revisions is still up for debate, however. There’s several steps that laws must go through before being passed in the UK, including consultation, scrutiny of the potential legislation in bill format and approval by both the House of Commons and Lords.
As previously mentioned, some UK residents would fall into the proposed bracket for a mansion tax without necessarily having a prosperous financial outlook. One key demographic in this regard is pensioners – with some critics noting that nearly one third of all properties valued over £2 million have been held by the same owners for more than a decade.
Similarly, property prices are currently experiencing an upward trend in Britain – a situation that’s been particularly exacerbated in the capital. As such, detractors claim that the mansion tax is something of a misnomer, as it could potentially affect much more modest homes in London and the south-east.
Counter to this – estate agents Knight Frank has claimed that the number of properties that would fall into the mansion tax bracket wouldn’t be nearly enough to generate the target revenue of £2 billion sought by advocates of the levy.
“Our calculations point to the real threat of the mansion tax threshold being lowered substantially in order to meet the revenue targets of the political parties,” said Knight Frank’s head of residential research Liam Bailey.
He went on to state that if the £2 million bracket did not rise in line with house price inflation, this could “substantially” increase the amount of properties that would be affected by the tax.
During the passing of the proposed tax into law, there could be numerous revisions made to address the above concerns and more. As such, several variations have been proposed.
For instance, Mark Field, MP for the Cities of London and Westminster, has suggested the tax be solely imposed on non-British residents to discourage the trend of prices in this area being buoyed by an influx of foreign investors.
Shadow Chancellor Ed Balls also recently reaffirmed his commitment to ensuring those with valuable assets, but low amounts of cash, would not be adversely affected by its introduction, through the inclusion of relief or deferment clauses under Labour’s plans.
However, he also told the Evening Standard that homes worth over £5 million could potentially see a higher rate of tax under Labour.
The mansion tax could have wide-ranging implications for those with high-value properties, but at the moment the key word is could. There’s no guarantees that the legislation will be passed and even if it is – whether it’ll be in a form resembling the current proposals.
Opposition to the tax is active and vocal, and as mentioned – the proposition will have to run several gauntlets before being passed into law.
What are your views on the mansion tax? Will it be an effective way to redistribute wealth, or simply act as another revenue source for the government? We love to hear what you have to say, so be sure to get in touch via Twitter.
Image used courtesy of Wikimedia Commons.