Mansion tax causes a stir – but what would it mean?
THE announcement at the Labour Party conference that the party wanted to introduce a mansion tax on properties worth more than £2million caused a big stir, not least because of the lack of detail on how much the tax would be and how it would be implemented.
But in a recent Evening Standard article, the shadow chancellor filled in some of the gaps:
The £2m threshold will rise in line with property prices, to stop more properties being drawn into the tax as a result of inflation.
It will be progressive tax, so that properties worth tens of millions make a bigger contribution than those just over the limit.
The tax will be banded, with different rates by price bands. Homes between £2m and £3m will pay about £250 per month.
There will be protections in place for people who do not have high income but happen to live in an expensive property – defined as those earning less than £42,000 a year. They will be able to defer the payment until the property changes hands.
At values closest to the threshold, the tax burden is likely to be less than previously expected, confirmed by Ed Balls’ promise of homes worth between £2m and £3m paying no more than £250 per month.
Given the relatively low amount of council tax paid by higher value property owners and previous worries that the tax rate would be punitive, this is something of a relief.
The tax will be based on a flat charge per band, which means that the charge will be staircased as you go up the price bands.
Andrew Riley, associate director of Hamptons International in Gerrards Cross, said:“In terms of market impact, if the tax were to be introduced it would cause some bunching around the thresholds.
“It would also put some downward pressure on house prices now as the future cost of the mansion tax was discounted from the sale price.
“But this would be a one-off adjustment as the tax is factored in, so there is unlikely to be continued distortion unless the tax rates change.
“In the short term, uncertainty about the tax is likely to cause some flight into lower priced properties. Transactions could be brought forward as owners downsize to avoid the tax, which would put some downward pressure on prices.
“But it’s unclear how far owners will be prepared to move to avoid the tax as calculations would have to take into account moving costs and any additional costs such as longer commuting.
“Similarly, splitting a property into flats to avoid the tax has consequences beyond living space as the cost of conversion has to be weighed up against the cost of future tax.
“Undoubtedly the uncertainty around the policy will cause some extraordinary activity in the market as buyers and sellers negotiate over prices in anticipation of policy implementation. But there are other important uncertainties too, not least how to value property and keep the values realistically updated. That will take some time to work out and will have to be completed before a tax could be levied.”
For more information on how a mansion tax could affect you, please contact Andrew Riley, Hamptons International on 01753 886 464.
LOCATION, LOCATION: The orange dots show where properties affected by a possible mansion tax would be situated