Miliband’s mansion tax will barely raise a penny, say experts
LABOUR’S £1.2billion-a-year mansion tax haul could be virtually wiped out by plunging stamp duty, inheritance tax and running costs, experts warned last night.
Many prospective buyers desperate to avoid a new annual 1 per cent tax on properties worth more than £2million would lower their offers, research suggests.
Meanwhile, sellers wary of trying to market homes burdened with the mansion tax would be more likely to price them lower.
Even a 10 per cent fall in the value of properties priced £2million or more would trigger a £500million slump in tax receipts for stamp duty and death duties, analysis by estate agent Savills shows.
And when the annual cost of r unning a new valuation department is added to the money needed to pay owners’ appeal bills, the anticipated £1.2billion gain could be lost.
Lucian Cook, director of research at Savills, said: ‘There would be significant problems with the implementation of a mansion tax – not least regarding property valuations.
‘The potential is there for big leakage in the system, particularly from lower levels of stamp duty and inheritance tax.’
Elaine Clark, managing director of CheapAccounting, said: ‘The cost of running what is likely to be a new government department could be hundreds of millions of pounds.
‘Add all this in to the likely fall in taxes, and the gains could easily be wiped out – the whole premise is unworkable.’
And James Browne, senior research economist at the Institute for Fiscal Studies, said: ‘Adding in a mansion tax of 1 per cent a year won’t be very attractive to a buyer or a seller. So prices could fall as people price in the impact of this annual cost every year.’
Ed Miliband put the levy at the heart of his speech at the Labour Party conference, as part of proposals to spend £2.5billion a year more on the NHS. More than 100,000 house- holds could end up paying a new average tax bill of £15,000 if the tax is introduced at 1 per cent of values above a £2million threshold as anticipated.
In May, 238 homes worth more than £2million were sold, figures from the Land Registry show, up by 46 per cent compared to the year before. While Labour says the tax will target only wealthy owners, there are fears it will unfairly hit pensioners who bought homes decades ago which have rocketed in value.
This could leave pensioners on limited incomes trapped and forced to take out loans to cover the tax. It has been suggested that elderly homeowners without the money to pay up front may be able to put off paying the tax until they die. But this would still leave their families faced with bills for tens of thousands of pounds.
George Bull, senior tax partner at accountant Baker Tilly, said: ‘For people who can’t afford the costs up front, deferring a mansion tax bill like this is a hard way of making it easy for them to cope with it.’
An estimated 250,000 people will also have to stump up hundreds of pounds to pay for a surveyor in order to work out if their property is worth more than £2million, estate agent Knight Frank suggested. At today’s prices, its figures indicate that 110,000 homes will be affected by the mansion tax – double its 2013 estimate.
Liam Bailey, global head of research at Knight Frank, said: ‘The cost of these valuations for householders who aren’t sure if their home would fall within the bracket is going to be a real problem. It’s yet another layer of charges on the property market.’
And yesterday a former Bank of England economist who authored a report on housing for the last Labour government criticised the mansion tax.
Kate Barker – who used to sit on the Monetary Policy Committee, which sets interest rates, said: ‘It’s difficult to feel sorry about the effects of house prices as they have risen so rapidly.’
But she went on to say that the move would be ‘very disruptive’, adding: ‘I wouldn’t do the mansion tax myself.’