New research published today by the estate agency Knight Frank has revealed further weaknesses in the case for a new ‘Mansion Tax’. In 2012 Vince Cable proposed a levy of 1 per cent annually on properties valued at over £2 million. Politicians have suggested such a levy would raise between £1.7 billion and £2 billion annually.
However Knight Frank concluded that the with the proposed threshold and tax rate HMRC would raise just £1.3 billion. Additionally, in order to raise the targeted revenue, the threshold at which homeowners would have to start paying the tax might have to be reduced as low as £1.25 million nearly tripling the number of people affected from 55,000 to 140,000. What is being sold as a 'tax on the rich' will eventually drag more and more taxpayers down.
Similar to the TPA’s own research into the Stamp Duty time-bomb, the Knight Frank report highlighted impact of house price rises on who would pay the tax. Liam Bailey, Head of Research at Knight Frank, said: “Over the past 10 years house prices have risen by 69 per cent. Assuming a similar rate of growth in the future, all houses worth more than £1.2 million today would be paying a mansion tax 10 years from now, meaning that the number of homes covered would nearly triple from 55,000 to 157,300.”
The proposal for a Mansion Tax would further contribute to pre-existing problems in an already over-taxed and over-regulated property market. Instead of making pernicious political gestures the Government should focus on relaxing regulations which would allow more affordable housing to be built.
The key findings of the Knight Frank report are:
- The Mansion Tax, as currently proposed, will raise approximately £1.3 billion annually, before exemptions.
- In order to raise the targeted revenue the value threshold for the tax would need to be reduced from £2 million to either £1.5 million (to raise £1.7 billion) or £1.25 million (to raise £2 billion), and potentially even lower once exemptions and the cost of collection are allowed for.
- Reducing the threshold from £2 million to £1.25 million would more than double the number of properties affected from 55,000 to 140,000.
- The tax would be levied overwhelmingly on London and the South East of England, with 86.4 per cent of all £2 million+ properties located in those two regions.
- Heritage properties would be targeted, with 16 per cent of all £2 million+ properties being listed buildings compared to less than 2 per cent of all sub-£2 million properties.
- With a £2 million threshold nearly one in ten properties defined as “mansions” would be one and two bedroom flats.
- If the £2 million threshold were adopted and not increased in line with house price inflation, over the next 25 years a total of 775,500 properties would be dragged into the Mansion Tax net, including all properties with a current value of £554,000 or more. This means that some first time buyers buying through the government’s help to buy scheme (upper limit £600,000) would be paying a mansion tax before they finished their mortgage term.