The dust is settling on the party conference season and residential property was once again under the spotlight. Given the looming election, this seems a helpful juncture to sum up where it appears the debate on the mansion tax now stands.
The Conservatives seem not to favour a mansion tax, but reform and revaluation of council tax has also been much discussed and there is no certainty that the Conservatives will not seek to neutralise this issue by initiating this reform in the next parliament should they emerge victorious in May 2015.
Labour and the Liberal Democrats have expressed a strong preference for the introduction of a mansion tax although some of the reaction in the media has been relatively hostile to the proposed imposition of this new ‘envy levy’. Therefore, the form of any mansion tax may be much watered down by the time it reaches the statute book.
The Liberal Democrats kickstarted the whole debate with a proposal for a 1 per cent levy on residential property worth more than £2 million. This was rapidly shelved and now the party has settled firmly on a revaluation of council tax bands with the introduction of a number of higher bands for the highest value property.
Given the current polls, it seems somewhat unlikely that the Liberal Democrats will have much opportunity to implement anything at all, let alone these proposals although they could, of course, form part of any coalition negotiation.
Labour has now jumped onto the mansion tax bandwagon. Ed Balls has proposed a mansion tax modelled on the current annual tax on enveloped dwellings with properties in specified bands of value paying an annual charge. Balls says the limit would be raised annually in line with the rise in house prices and not simply in line with inflation, ensuring fewer homes are dragged into the net each year. This will likely introduce market distortions where prices ‘flex’ around the banded rates.
In addition, the process of valuation and implementation as well as the possibility of this tax depressing the property market and therefore the amount received by the treasury in revenues from Stamp Duty Land Tax will surely make a considerable dent into the £1.7 billion this tax is intended to raise.
Further issues abound – there has been much concern that the people who this will really affect are the asset-rich cash-poor pensioners who have lived in a home which just happens to now be worth more than £2 million. By way of illustration, an analysis by a Treasury aide found that a family home bought in London 30 years ago for £220,000 is now worth £2 million.
The solution proposed by Labour is a proposed roll-up where the tax would be compounded during the occupier’s lifetimes and payable on death. Therefore, those seeking to pass their assets to the next generation would need to prepare for 40 per cent inheritance tax as well as paying any mansion tax; this is potentially a tax raid too far.
As one of Mr Miliband’s own MPs, Glenda Jackson, said ‘It will impact disastrously on people who are asset rich but revenue poor, particularly pensioners, who bought their houses many years ago and through no fault of their own have seen the value rise.’
What form a mansion tax may end up taking and whether one is introduced at all will only be known with certainty at the end of next year after the May election – however the conference season has certainly shown that this debate is not going away.
Edward Burton is a lawyer at boutique private wealth law firm Maurice Turnor Gardner LLP. He specialises in prime and super prime residential property