In what has become something of a political hot potato, the subject of a mansion tax on UK property valued at over £2 million has reared its head again. The Liberal Democrat party estimates this punitive tax could raise around £1.7 billion per annum while the Labour Party is forecasting nearer £2 billion. However, there are now serious concerns that the introduction of a mansion tax would hit individuals who have saved all their lives, perhaps bought their property decades ago and could not afford to pay such an additional tax.
On paper the 1% annual tax on properties worth in excess of £2 million does not seem extreme, but on a property with a value of £2 million this equates to an extra £20,000 per year which would need to be earned net of tax. At a time when all political parties accept the cost of living is going up, household income is going down in relative terms and economically it is very tough, the introduction of this tax would potentially hit the superrich but also those “relatively well off”.
Investors would escape the tax
In a bizarre development it has been revealed that under the terms of the proposed mansion tax, investors who acquire property through their commercial enterprises would not be exposed to the 1% per annum tax. There is also potential for individuals to downplay the value of their properties, indeed many families may not be able to cover the 1% tax and could be forced to sell at knock-down prices, which would play into the hands of investors who are exempt.
Quote from PropertyForum.com : “While there is no doubt that the 37 storey skyscraper at 20 Fenchurch Street, London certainly catches your eye as you walk past, it seems that property in the region really is “red hot”.”
Research also shows that a number of retired couples who have possibly lived in their family home for decades, paying relatively little in terms of today’s money, would likely struggle to find the extra charge which seems grossly unfair. While some might suggest that exemptions could be introduced to the mansion tax bill the fact is that there are so many areas of potential exemption you have to wonder whether it would be economical to even bring in the tax that is before we even look at collection costs!
In what could be seen as a tax on London and the south-east, it has been revealed that three quarters of the properties which could potentially fall under the scope of the mansion tax are located in London and the south-east of England. The fact that the North, West, Midlands and south-west of the country would escape in relative terms suggest not only a location bias but also a political bias.
There are grave concerns that the mansion tax is becoming nothing but a political football which is being used to take additional funds from those deemed to be “well off” and redistribute across the wider population. When you also take into account the fact that UK base rates are currently 0.5% and set to remain at this level until potentially 2015, those with savings in the bank are losing the value of their hard earned funds in relative terms and many could also be squeezed for upwards of £20,000 per annum by the mansion tax.
When you look at the proposed mansion tax in the cold light of day, is it really fair?