Labour’s mansion tax proposals
By Jo Eccles
The Labour party has recently released further details on how they would implement a mansion tax on properties priced above £2m, should they win the general election next year. The charge is expected to affect properties in price bands of values from £2 – £5 million, £5 – £10 million, £10 – £20 million and over £20 million.
They state that the tax would be ‘progressive’ so that home owners of properties worth tens of millions of pounds pay significantly more tax than those whose home is just within the entry tax band. Their plans also make concessions for asset rich but cash poor home owners, saying that they will consider a relief scheme or allow these home owners to potentially defer payment until the property is sold.
In answer to rising house prices, they do propose that each year, the lowest £2 million band would be raised not just in line with overall inflation, but by the rate of house price inflation too. This would avoid more modest properties entering into the band each year.
Whilst increasing the tax threshold each year in line with property prices sounds fair, it’s not that simple due to significant variations of house price growth in different parts of the country. Research shows that since the £2 million threshold was first discussed in 2009, house prices have risen by 12% in the UK, but 65% in some parts of London, so it’s only fair that these variations are taken into account.
Londoners and those in the South East are therefore expected to be hit the most, despite the fact that they already pay significantly more tax on their properties, versus the rest of the country. There are also concerns that this will have serious knock-on effects on the more modest ends of the property market as we may see investors look to buy in cheaper areas of London where they can purchase several properties below the £2 million threshold thus avoiding this tax. In time, this will almost certainly push up prices in otherwise more affordable areas, as more modest property buyers will face increasing competition from the surge of new wealthy investors.
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