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Un-Mansionable Tax…

Over the last couple of weeks the dreaded ‘M’ word has raised its ugly head, with both the Liberal Democrats and Labour Party proposing Mansion Taxes on properties worth more than £2m.

But the question is whether Mansion Tax is already being subject to a ‘trial run’.

Since April of this year, annual tax is charged on residential properties worth more than £2m owned by companies. This annual tax is only estimated to raise £35m which, to go through the costs of setting up a new tax system, with a new tax return and a new department to manage these cases, seems a big investment for such a small return. Cynics might say that this is just a precursor to a full Mansion Tax.

The rate of the current tax varies in bands, depending on the value of the property, between £15,000 per annum to £140,000 per annum – which effectively means a rate as high as 0.75% of the gross value of the property and around 0.3% for properties worth £20m (£140,000 per annum is a set rate for properties worth £20m plus). This fits with the rates applied in other countries where there is a wealth tax.

What would the likely tax take be if this rate was applied across the board? Making some assumptions of an average 0.5% rate, around 60,000 properties (the numbers vary between 55,000 to 70,000) and an average value of £5m each, tax of £1.5bn could be raised annually. That starts to make a new tax and a compliance system seem worthwhile for the tax authorities.

However, the issue is that the objective of both the Liberal Democrats and the Labour Party is to tax wealth, whereas property ownership is just one measure of wealth and an imperfect one at that. It is an often-repeated argument that a homeowner with a high value property may not have the means to pay the tax.

Equally, the tax misses the other wealth (investment properties, share portfolios, bank accounts, etc) of someone who lives in either a modest property or an area of the UK where property prices are, on average, low. In other words, a Mansion Tax is a very blunt instrument which will not achieve the parties’ stated objective and may, in fact, drive away those people who make the biggest contribution to this country’s tax take.

This was posted in Bdaily's Members' News section by Baker Tilly .