Mansion tax

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Flats at Langham Mansions in Warwick Road, London SW5. Some expensive London properties may be flats in larger blocks.

A mansion tax is a popular but misleading name for an annual property tax on high value homes. The tax is only a proposal in the United Kingdom, but has proved very controversial and has received widespread media coverage. At present, the most commonly cited trigger point would be a property value of £2 million.

United Kingdom[edit]

In the United Kingdom, the concept of a mansion tax is widely attributed to Vince Cable.[1] In its original form, proposed in 2009,[2] Cable suggested that all properties valued at over £1million would be taxed annually. He raised the proposed threshold to £2m in January 2012.[2]

Budget 2012[edit]

In an accommodation with Coalition partners, the proposal was modified and a 7% rate of Stamp Duty Land Tax was levied on house sales over £2 million, following George Osborne's 2012 budget. In contrast to an annual "mansion tax", this one-off tax is only paid when a property is bought.

Lib Dem conference motion 2012[edit]

Support for the original proposal re-emerged at the Liberal Democrat 2012 conference.

The motion called for “an annual mansion tax on the excess value of residential properties over £2 million as a first step towards wealth taxation designed to reduce inequality”. It was passed in a vote of over 200 delegates, with just two against.[3]

Despite this, the Liberal Democrat's coalition government partner, the Conservatives, ruled out the introduction of a Mansion Tax; Chancellor of the Exchequer George Osborne said in October 2012: “We are not going to have a mansion tax, or a new tax that is a percentage value of people’s properties. Before the election they will call it a mansion tax, but people will wake up the day after the election and discover suddenly their more modest home has been labelled a mansion."[2]

Labour Party embrace concept[edit]

On 14 February 2013, the Labour Party leader Ed Miliband said that he would, if in government, introduce a mansion tax and then re-introduce a ten pence tax rate for low earners.[4] However, there was no commitment to put this policy into the Labour Party manifesto and there was also criticism of the fairness and practicality of the proposal.[5] However, Miliband reiterated this policy proposal at the 2014 Labour Party Conference and it is now a firm commitment. Labour claimed the policy would raise £1.2bn a year which would be used to fund the National Health Service.[6] Based on an estimated 100,000 homes valued over £2m, this means each property would be liable for an average bill of £12,000.[7]

On 20 October 2014 in response to widespread publicity about the proposal, the Shadow chancellor Ed Balls published further details. He confirmed properties valued between £2m and £3m would pay £3,000 per annum, but properties over £3m would pay considerably more. [8] Commentators have suggested that in order to raise the projected £1.2bn, the Mansion Tax payable on homes over £3m would have to be £28,000.[9]

Liberal Democrat Party moves away from Mansion Tax[edit]

In October 2014, the Liberal Democrats abandoned plans for a new tax on high value homes, opting instead for a change in the existing Council Tax system.[10] Nick Clegg, speaking on the BBC during the Liberal Democrat Party Conference 2014, said: "I went off, big time, the idea that you have a fixed levy as a percentage over a certain value. The more I looked at it, the more I thought, ‘That’s very crude.’ It leads to eye-watering amounts of tax being paid. What we should do is go with the grain of the council tax system and apply bands to higher properties.”[2]

Criticism[edit]

Critics have said such a policy would hurt pensioners, as according to studies,[11] almost one third of all properties worth over £2 million have been in the same ownership for over ten years. The phrase 'mansion tax' is alleged by critics to be misnomer as 10% of properties in London valued at over £2million are in fact one or two bedroom flats.[12] A further issue is that a mansion tax could require an expensive and unpopular valuation exercise to be carried out, possibly in tandem with revisiting council tax bands.[13] The exact amount of tax that would be raised is also uncertain.

Variants[edit]

The tax could be structured in a number of different ways. One possible variant is to limit the scope to non-resident, non-British owners of property. This would be intended to discourage foreign ownership of dwellings and free up housing stock for residents. Such a modification to the mansion tax has been suggested by Mark Field,[14] an MP in central London, where overseas ownership of property is commonplace. There are perceptions that the high cost of housing in London is in part due to a disproportionate amount of residential property being owned by non-resident, non-tax paying foreigners,[15] and that a modified mansion tax may alleviate this issue. Limiting the scope in this way would also limit the valuation exercise that the introduction of a mansion tax would require, as fewer properties would be impacted.

See also[edit]

References[edit]

  1. ^ Comment. "The UK is already taxed to death - a levy on wealth would be the last straw". Telegraph. Retrieved 2012-10-04. 
  2. ^ a b c d PrimeResi. "A potted history of the Mansion Tax". PrimeResi. Retrieved 2014-10-04. 
  3. ^ Hope, Christopher (2012-09-25). "Lib Dems demand £2m mansion tax for the 'stinking rich'". Telegraph. Retrieved 2012-10-04. 
  4. ^ "BBC News - Ed Miliband backs 'mansion tax' to fund 10p tax rate return". Bbc.co.uk. 2013-02-14. Retrieved 2013-09-21. 
  5. ^ "UK Mansion Tax: Report Reveals Full Impact". Forbes. Retrieved 2013-09-21. 
  6. ^ "Labour conference 2014: housing roundup". bbc.co.uk. 25 September 2014. Retrieved 26 September 2014. 
  7. ^ http://www.bbc.co.uk/news/business-29326057
  8. ^ http://www.standard.co.uk/news/politics/ed-balls-less-wealthy-can-delay-paying-mansion-tax-9806016.html
  9. ^ http://www.standard.co.uk/comment/comment/simon-jenkins-ed-ballss-sums-dont-add-up--we-must-raise-council-tax-9808542.html
  10. ^ PrimeResi. "Lib Dems abandon ‘crude’ mansion tax in favour of new Council Tax bands for high value homes". PrimeResi. Retrieved 2014-10-06. 
  11. ^ "Some questions on the Mansion Tax : A briefing note". Cps.org.uk. Retrieved 2013-09-21. 
  12. ^ Adam Uren (2013-09-03). "Mansion tax needs to hit £1.25m homes not £2m to meet target". This is Money. Retrieved 2013-09-21. 
  13. ^ "Mansion tax would require expensive revaluation". 121move.co.uk. Retrieved 2013-09-21. 
  14. ^ "Mark Field MP: The deeper discontent beneath the mansion tax debate". Conservativehome.blogs.com. 2013-02-23. Retrieved 2013-09-21. 
  15. ^ Hammond, Ed (2013-08-03). "Foreigners buy nearly 75% of new homes in inner London". FT.com. Retrieved 2013-09-21.