Boris Johnson has indicated that Mansion Tax could be introduced in next month’s budget, which may anger some of the party’s long term supporters. This scheme was initially raised in 2009 by the Liberal Democrats when it was estimated it could raise £1.7 billion a year by introducing an annual 1% tax on the value of residential properties that are in excess of £2million. The Labour Party later intended to implement a Mansion Tax in the same way, had they gained power at the general election in May 2015.
The Mansion Tax could work in the same way that it was initially proposed, meaning an annual charge of 1% on any value in a property that is in excess of £2 million would become payable. For example a £3 million property would be taxed 1% of £1 million, therefore the tax payable would be £10,000 a year. The new owner of an apartment in London that sold for £140 million will be looking at a mansion tax bill of £1.38 million. Therefore the amount of tax payable is proportionate to the property value. Alternatively, an additional band of council tax could be introduced.
Anyone who owns a home worth over £2million. Many of these properties would certainly not be described as mansions, depending on the location, particularly in prestigious parts of London and the South East where properties valued over £2million include many one or two bedroom flats and apartments.
Mansion Tax is an idea that appeals to many people who feel that owners of high value homes do not pay enough tax. This opinion has of course been addressed previously, resulting in changes to the Stamp Duty Land Tax.
This proposal has been met with various criticisms in the past, including concerns from Boris Johnson when he was Mayor of London, when he called it a ‘tax on London’.
There is concern for pensioners in certain locations who have lived in their home for a long time and would be unable to afford a new tax every year. There has been suggestion that it could be possible to defer the tax bill until such time that the property is sold.
Interestingly, over half of London properties worth over £2million are actually purchased by overseas investors and therefore it can be argued that this tax is not targeted at working class families.
There is also concern within the property market that this proposal will suppress the value of homes close to the £2million margin in the same way that stamp duty bands affect sale prices, or put people off carrying out home improvements that will increase the value of their homes.
Questions have also been raised surrounding how the value of properties will be determined. The valuations used for council tax banding are out of date and given that the home owners themselves will be responsible for declaring how much their properties are worth, and penalties will likely apply in instances where inaccurate figures are given. Critics say that there are not enough surveyors (who are already stretched) to cope with the likely increase in demand.
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Last updated: 12 February 2020 | © KIS Bridging Loans 2024 |