Mansion tax

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

A mansion tax is a common name for an annual property tax on high value homes, although the term itself is widely regarded as a misnomer.^[1] 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.

Original concept

In the United Kingdom, the concept of a mansion tax is widely attributed to Vince Cable.^[2] In its original form, proposed in 2009,^[3] Cable suggested that all properties valued at over £1million would be taxed annually. He raised the proposed threshold to £2m in January 2012.^[3]

Budget 2012

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.^[4]

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."^[3]

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.^[5] 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.^[6] 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.^[7] Based on an estimated 100,000 homes valued over £2m, this means each property would be liable for an average bill of £12,000.^[8]

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.^[9] 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.^[10]

Liberal Democrat Party moves away from Mansion Tax

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.^[11] 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."^[3]

Autumn Statement 2014

On 3 December 2014 George Osborne announced changes to Stamp Duty. These measures included large increases in tax for more expensive houses. A buyer of a house at £2m would now have to pay £153,750 in Stamp Duty. In his speech he alluded to this being his alternative to Labour's Mansion Tax.^[12]

Criticism

Critics have said such a policy would hurt pensioners, as according to analysis by the think-tank the Centre for Policy Studies,^[13] 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.^[14] 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.^[15] The exact amount of tax that would be raised is also uncertain.

Variants

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,^[16] 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,^[17] 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.

Other countries

In the United States, a similar "McMansion tax" proposal has been put forward by a number of political representatives, including James McGreevey^[18] and John Dingell.^[19]

See also

• Council tax (UK)
• Land value tax

References