If there’s one thing everybody hates, it is having to shell out hard-earned wealth in the name of tax. Political parties notoriously differ on their taxation views, and over the past few months Labour’s idea for a mansion tax emerged as one of their prime solutions of raising revenue for the NHS.
Labour leader Ed Miliband stated that owners of properties worth more than £2 million would face an annual charge. This would be a progressive tax, meaning that those with the biggest homes would pay proportionately more than those just scraping above the brink of £2 million. Alongside this, the threshold would rise in line with rising house prices, therefore home-owners would not be dragged into the tax as a result of their existing home rising in value.
The significance of location in the contemporary housing market would subject homes of differing shapes and sizes to the mansion tax. The well-known internet portal “Rightmove”, for a price of £2 million lists a two-bedroom building in London, but at the same time, a four-floor detached home in Greater Manchester.
It is near impossible to pin-point a figure of how many home owners would be affected, with some property valuers stating that there are near 60,000 homes in Britain with a value in excess of £2 million – but Zoopla estimates nearly double this; quite a disparity.
Labour claim that this would raise £1.2 billion a year, although analysts strongly debate this figure given the complexity of the tax. Levying a charge of £3,000 a year on homes worth £2-3 million will raise £140 million, according to Savills. That leaves Labour seeking to raise £1.06 billion from a remaining 57,000 properties worth over £3 million, paying an average of £19,000. It means that the bulk of the revenue is balanced on a relatively small number of people – who said anything about fairness?
In 2013, Prime Minister David Cameron ruled out a mansion tax, claiming that a “wealth tax” is not sensible for a country that wants to attract “wealth creation”, the very notion of capitalism. I mean, think of the deprived oligarchs, wherever will they stay? Here we can clearly see the differences in the left and right ideologies of the political parties. Away from this, house builders and estate agents fear the mansion tax will curtail building of new homes in London and South East England where a shortage of supply has been one of the very factors pushing up prices.
Accountants say that the scheme will carry a number of unintended consequences. Mansion tax would work on “slab system” – with the tax rate increasing over threshold of £2 million, property owners and sellers will try to keep their home in the lower tax bracket, causing what is known as “bunching” in the market. Potentially worse; people who bought their properties decades ago, only to see their house value soar in the modern era, will be served with this heavy tax.
The problem – many of these people will not have the salary income to match the property value in the modern age. In turn, this would lead to older couples with large family homes taxed heavily for down-sizing, meaning that few family homes would come onto the market. Shadow Chancellor Ed Balls has countered this by stating that those earning less than £42,000 could defer payment until the sale of the property. However, this could potentially have the consequence of bringing the tax into effect on death – a risky proposition coming up to the elections, where the Tories are committed to reducing inheritance tax.
With all the potential pitfalls, one could argue that the most promising feature of this tax is that it might add slightly more to the sour faced look of Roman Abramovich at Chelsea matches.
By Dre Efthymiou