UK Mansion Tax Status as at October 2014

There has been much talk about the so-called “Mansion Tax” but a distinct lack of clarity with regard to detail. This paper sets out what is known and what the implications would be if it were to be implemented.

The origins of the so-called “Mansion Tax” go back to the Liberal Democrats’ Party Conference in 2009 when Vince Cable proposed a 0.5% annual occupancy tax on homes with a value in excess of £1m. In November 2009, this proposal was revised upwards to a 1% tax on homes worth more than £2m, an idea taken up by Labour’s David Milliband the following year. The LibDems have continued to press, unsuccessfully, for a Mansion Tax since coming to power as part of the coalition government.

Labour has promised to introduce a Mansion Tax if they win the General Election in order to raise an expected £1.2bn to help fund the National Health Service. Meanwhile, the Liberal Democrats appear to have dropped the idea of a Mansion Tax in favour of additional Council Tax bands at the top end.

The Conservatives remain strongly opposed to any form of Mansion Tax. A number of economic thinktanks are also against the idea. Both the Institute for Fiscal Studies and the Adam Smith Institute have suggested a revised Council Tax system would be more efficient and fairer.

Labour’s current proposals are so far very light on detail.

What has been reported thus far is as follows:

– Homes valued at £2m+ would be liable for the Mansion Tax. The rate has yet to be specified and it is not clear whether it would apply just on the value above £2m or on the total value

of the property.

– The £2m threshold would rise in line with average property prices to prevent more properties being drawn within the scope of the tax. Exactly how this would work in practice has not

been revealed.

– It will be a progressive tax with possible bands mirroring those applied to ATED (Annual Tax on Enveloped Dwellings), i.e. ranging from £2m+ to £5m, £5m+ to £10m, £10m+ to £20m and £20m+. Again, there is no indication yet of what the rates would be for each band, although Ed Balls recently stated that those owning properties worth £2m-£3m would only pay an extra £250 a month through this new tax. This suggests that those owning properties valued at over £3m will pay substantially more in order to raise the targeted £1.2bn tax revenue.

– Labour will also look at asking overseas owners of second homes in the UK to make a larger contribution than people living in their only home – again, no further detail on this.

– As with the Government’s new tax on properties bought through companies, owners will be able to submit a self-valuation to HMRC.

– A relief scheme – or allowing those on modest incomes (defined as falling below the prevailing higher or top rate income tax brackets) to defer payment until the property is sold – has been suggested to protect “asset rich, cash poor” households. The relief clause has been reported as allowing owners of £2m+ homes on low incomes to roll up their liabilities until they are clawed back from their estates when they die. However, there is no information on the detail behind either idea.

Details of the Liberal Democrats proposals for additional Council Tax bands at the top end (i.e. above the current top rate Band H) have not been published.

There are a number of issues connected to both Labour’s and the LibDems’ proposals, which can be summarised as follows:

– Fairness: the tax would not impact equally upon all owners of £2m+ homes: households which are not otherwise wealthy but who have seen the value of their homes rise over time may struggle to cope and possibly be forced to sell.

– Tax rates: no rates have yet been specified and it is not clear whether the tax would apply just on the value above £2m or on the total value of the property. There is clearly a big difference between the two calculations.

– Location differential: a “one size fits all” approach for every location seems inappropriate.

The average house price in London, for example, is much higher than the rest of the country. The same issue applies to the raising of the threshold in line with average price rises.

– Cost of implementation: in order to assess fairly who will pay the tax, a value will need to be attached to each property, especially around the thresholds which are likely to prove contentious. Home owners submitting self-valuations might find that HMRC disagrees with their assessment and may end up having to pay for a professional valuation.

– Tax revenue: no-one knows for sure exactly how many £2m+ properties there are nor what the banded tax rates will be – thus how can we know how much tax will be raised?

– Tax creep risk: there is a risk that the threshold of the Mansion Tax might be lowered as has already happened with the lowering of the threshold for ATED and the ATED related CGT (Capital Gains Tax) charge.

– Impact on property values: buyer appetite will likely evaporate for properties within a range above the threshold – perhaps up to £2.2m or £2.3m – which will see owners needing to come below £2m if they wish to sell. On the other hand, given the £3,000 per annum cap for properties between £2m+ and £3m, its impact on homes within this band may be limited.

What are the potential implications?

There is currently too much uncertainty surrounding the Mansion Tax to be able to make an informed judgement about how to react to it. Firstly, we do not have sufficient detail about the tax rates which will be applied, nor how it will work in practice. Secondly, it is not possible at this point in time to predict who will win the General Election. Prudence suggests a watch-and-wait approach whilst at the same time preparing a selling strategy should Labour or the Liberal Democrats come to power next May.

What should you do now?

There is currently too much uncertainty surrounding the Mansion Tax to be able to make an informed judgement about how to react to it. Firstly, we do not have sufficient detail about the tax rates which will be applied, nor how it will work in practice. Secondly, it is not possible at this point in time to predict who will win the General Election. Prudence suggests a watch-and-wait approach whilst at the same time preparing a swift selling strategy should Labour or the Liberal Democrats come to power next May!

SOURCE: CHESTERTONS

Press release ends.

ABOUT NEW FOREST, SANDBANKS, UK COUNTRY HOUSES AND ESTATES PROPERTY SEARCH AGENTS AND PROPERTY BUYING ADVISORS, SANDS HOME SEARCH

Sands Home Search are independent Property Search & Relocation Agents who specialise in finding and acquiring the finest property for sale in The New Forest, Sandbanks, the UK Country House market and in Cape Town South Africa for private, corporate and international property buying clients.

TEL: 01425 462 549

(from outside of the UK 0044 1425 462 549)

WEBSITE: www.SandsHomeSearch.com

CORPORATE VIDEO: www.YouTube.com/User/PropertySearchAgents

Follow us on Facebook: www.FaceBook/pages/UK-Property-Search-Agents-Sands-Home-Search

TAGS: New Forest, Sandbanks, England, Property, Sale, Buy, Selling, Buying, Search, Homes, Houses, Country Homes, Property Search Agent, Relocation Agent, Property Buying Agent, Property Buying Advisor, Relocation Company, Property, Real Estate, Country Houses, Country Homes, Country Estates, Period Property, Equestrian Property, Farms, Waterside Homes, Town, City, Village, For Sale, Period Property, Rectories, City, Buying, Selling, Renting, Homes, Houses, Estate Agents, Property Search, House for sale, Property Prices, Property Market, Property Agents

(from outside of the UK 0044 1425 462 549)

Advertisements

About Property Search Agents

Sands Home Search are property search agents and relocation agents who specialise in finding and acquiring the finest residential property for sale in London, The UK Country House and Farm market and in Cape Town, South Africa for private, corporate and international property buyers clients. www.SandsHomeSearch.com
This entry was posted in Property Search and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s