A mansion tax is a popular 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, with the annual tax only being payable on the value over that (eg, a £2.5 million property would only pay tax on £500,000).
In the United Kingdom, the concept of a mansion tax is widely attributed to Vince Cable. In its original form, Cable proposed that all properties valued at over £2 million would be taxed annually at a rate of 1%.
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
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.
Labour Party embrace concept
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. 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. Ed Miliband reiterated this policy proposal at the 2014 Labour Party Conference. Labour claimed the policy would raise £1.2bn a year which would be used to fund the National Health Service.
Critics have said such a policy would hurt pensioners, as according to studies, 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. 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. The exact amount of tax that would be raised is also uncertain.
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, 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, 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.
In the United States, an additional real estate transfer tax is paid by the buyer in the states of New York and New Jersey when the purchase property exceeds one million dollars. In the case of New York, a price of exactly one million dollars would trigger the tax. The value of the tax equals one percent of the total sale consideration.
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