As London Buyer’s Agents we were interested to read a recent interview with The Telegraph (http://tgr.ph/n7WTGf) where Eric Pickles, the secretary of state for communities and local government has said that it would be a, “very big mistake”, to go ahead with any form of the Liberal Democrat’s proposed “mansion tax” on properties worth over £1 million.
A 1% annual tax applied to houses worth more than £1 million was first proposed at the Liberal Democrat party conference of 2009. The suggested threshold was later increased to properties worth more than £2 million, and this year the policy was refined further, with the Liberal Democrat Party suggesting that there should be a levy of 1% on capital gains tax from the sale of a property after the first £1million. .
This is an obvious attempt to make owners of high value property in the UK, whether British or foreign citizens, to pay up in order to share the burden caused by the national deficit, a questionable source of revenue when you stop to consider that an overhaul of the current council tax system has been estimated to cost upwards of £250million.
Although unlikely to temper overseas buyers’ zeal for good quality, high-end property in prime central London, a “mansion tax” is likely to dissuade middle-class British buyers from progressing up the property ladder. They are instead likely to decide to remain where they are, which would decrease the amount of property below £1million that comes onto the market, negatively affecting both ends of the market.
It is also possible for an astute property investor to buy property below the £1 million mark, and develop the property sufficiently after its official government valuation and still benefit from their investment, which makes the £1 million threshold seem rather arbitrary indeed.
There would be an uneven burden on home-owners in London and the South-East where the value of property continues to increase despite the recession. Eric Pickles rightly said last week that it would be, “imposing taxation on the back of changes in property value”. Following Eric Pickle’s interview it seems unlikely for now that any version of the “mansion tax” is likely to be passed under this coalition government, however much the Liberal Democrats want to replace the 50p tax rate for high earners with a tax for so-called “unearned wealth”. This would negatively affect people who are house-rich, but cash-poor, and whose life earnings have been channelled into their property, with a view of it being a retirement safety net, or a legacy for their children. Many people view their home as an investment, and I don’t believe that people should be taxed for choosing to invest their money well, and having their savings in bricks and mortar.