24th October 2014 - Rolfe East Property Column
How Would a Mansion Tax Work? Er, It Wouldn’t
The unwelcome concept of a “mansion tax” has, worryingly, been bandied about again in the news, essentially meaning that owners of properties worth more than £2m would face an annual charge. A good idea? Maybe, but - whilst I believe that everyone should pay their fair share towards a civilised society - I’m concerned that this will become a ‘tip toe tax’ that far too many ordinary people end up paying – just like the misnomer ‘high rate’ of tax that penalises them now.
The image of a mansion for most people is a country home, in acres of grounds, perhaps with a tennis court or stables in view from the window of one of the many bedrooms. However, because of the significance of location, homes subject to a mansion tax would be of very different shapes and sizes – with estate agent Knight Frank suggesting that 36% of £2m-plus homes are detached, 31% terraced, 22% flats and 11% semi-detached. And there is also a debate over how homes are valued; at present bands are still based on valuations made in 1991.
Estate agent Savills estimates that there are about 97,000 properties in the UK, while Zoopla puts the number at about 108,000, and estate agent Knight Frank puts the total around 110,000. All agreed though that the vast majority of these - well over 80% - would be in London and the South East. So, essentially, it would be a London and SE tax.
The truth is it is a proposed tax on pretty ordinary people who are doing well, which is not to be discouraged, and that there are huge variances in properties that are worth 2 million – such as a 2-bed apartment in an Art Deco building in London, but also a six-bedroom, four-floor detached home in Hale, Greater Manchester. The further truth is these people are not pleading poverty but they are not millionaires.
As has been proved with Government and the Bank of England interference controlling the market just doesn’t work, it simply places high hurdles in the way when it should be left to run on the flat track. Were this tax to be introduced then the Stamp Duty ‘Beecher's Brook’ would appear and clog the race up, just as it already does with properties worth £125,001 at 1%, and £250,001 at 3% etc. It’s already at 7% for properties over £2m now.
Sure as eggs are eggs it would inevitably lead to madcap schemes to devalue properties so they could limbo under the £2m value bar, such as a lease structure on part of the house, or maybe a sitting tenant. Even Sol Campbell - who was pretty good at defending matters and built like a brick house - has been outraged enough to come out in the press against it and persuaded him to put his Chelsea home on the market!
Furthermore, it’s worth noting that in 10 years time - or less - £1m houses could well be sucked into the tax whirlpool, as they could quite forseeably become worth £2m, and that would affect an awful lot more people.