When it comes to raising extra revenue, both Labour and the Conservatives see the property market as a sitting duck.
House prices have soared since 2013 and remain a key source of revenue for cash-strapped Whitehall. Policy makers have been eyeing London’s lucrative mansions for a while – but what’s the best way to tax property wealth and how should it be done? More importantly, will it be successful? Let’s find out from the experts at Best Gapp, estate agents in Belgravia…
Chancellor George Osborne hiked stamp duty on expensive homes in December’s Autumn Statement, while reducing the burden for nearly 100% of sales. Under the rules, a property selling for £275,000 saw its stamp duty bill slashed by £4,500 to £3,750, but the result wasn’t so great for those with pricier homes – a property worth £2m saw its bill rise from £53,750 to £153,750. The stamp duty changes meant that the hated ‘slab’ nature of the levy was altered. Overall the changed represent an annual tax cut of around £800m.
Our verdict: The stamp duty changes have helped the majority of people save money on their bills – this can only be a good thing. However, those at the top end are paying a much larger amount, which means they may be dissuaded from selling their homes. This means that there may be less movement at the top end of the market. Plus, if a mansion tax is introduced (see below), they’ll have a double whammy!
The Labour Party wants to add an annual levy to the most expensive homes and has dubbed this the ‘mansion tax’. Not all of the details are clear yet, but Ed Miliband has said it would be slapped on properties worth over £2m.
This could cause a lot of problems, with pokey studios in Kensington being eligible for the levy, while a massive ten-bedroom property in Stoke-On-Trent would be exempt. There are also likely to be lots of problems implementing the tax – one clear issue is how to value those houses. The last nation-wide valuation of homes took place in 1991, when council tax bands were set – and no government has touched this since.
Labour claims that owners can submit their own valuations – but this will be pretty difficult to oversee and is likely to cost a lot of money to implement. One person could claim a property’s worth £1,900m, another £2,100m. Who’s right?
The party says the tax will apply to below 0.5% of homes, amounting to 100,000 properties, and they want to bring in £1.2bn from the tax. For now, the party plans to charge those with properties worth £2m to £3m an extra £250 per month, or £3,000 per year. However, it’s not clear as to how much the homes worth more than £3m would pay.
It’s therefore pretty obvious that the tax is unlikely to bring in the target amount, meaning that as with many taxes, the mansion tax could well hit more and more people over time. This is what happened with inheritance tax – it was originally brought in to target rich landowners – however, it has progressively pulled more and more people into its net as time’s gone by.
Labour has said that it will keep the proportion paying the tax the same by changing the threshold in line with the average price of the homes affected when the charge comes into force. As well as this, the party says that those who can’t afford the tax can defer payments until the property is sold. So extra stamp duty, basically.
Our verdict: The mansion tax isn’t really workable – we believe it will be hard to implement and may well be scrapped.
There are other options that have been proposed, such as doubling the charges on those in the top council tax bands. This would hit wealthier households the hardest and would be quite progressive. Again, it may be hard for those people who have low incomes yet large houses, but it’s an alternative to the above.
Taxing expensive property is going to be on the agenda for a long time to come. The gains made by London property are rich pickings for governments, it’s just going to be a question of what the best and most efficient method is.