Mansion tax could impact twice as many homes than expected

The mansion tax proposals from Labour and the Liberal Democrats will hit double the number of homes than previously expected, according to new research from Knight Frank. The property consultant said that house price inflation in central London meant that properties that were valued at £1.2m in 2009 would now be in the scope of the proposed tax. Nearly 70% of the properties valued at more than £2m are located in London. Knight Frank explained that if the £2m threshold mooted in 2009 had increased in line with house price inflation, it would now be at £2.8m. In the most expensive areas of London, such as Kensington & Chelsea, the threshold would have to be raised to £3.2m, to cover the same number of properties.

Labour to protect low and middle earners

Knight Frank’s report follows comments from Ed Balls, the Shadow Chancellor, who stated that the threshold should rise in line with average rises in house prices to ensure more modest properties are not brought into the scope of the tax. Mr Balls also hinted that Labour would seek to protect people on modest incomes whose properties have soared in value as part of a general spike in prices in the area they live. He said: “Labour will only support a mansion tax that is fair to those who are asset rich but cash poor. We will look at a relief scheme or allowing those on modest incomes to defer payment until the property is sold.” He added that a mansion tax could be workable if there were a series of bands. The bands would be organised from £2m-£5m; £5-£10m, £10m-£20m and over £20m – in line with the bands that apply to the Government’s new tax on properties bought through companies. Knight Frank said Mr Balls’ proposal would still risk dragging lots of additional properties in high growth areas into the tax because their local market had outperformed the national average.

Abbott: “Tax on London”

Labour MP Diane Abbott has warned that Labour’s plans for a mansion tax will be seen as a “tax on London”. She said that alarm bells should be ringing because the tax would fall so much harder on Londoners. “The turbo-charged nature of the London property market means that anyone who bought a family house in a previously unfashionable part of London decades ago could easily now be living in a house worth over £1m,” she wrote in an article for Progress magazine. Ms Abbott suggested that Labour should look to target wealthy foreigners who invest in London homes which they do not live in. Her comments were echoed by a number of industry experts. Edo Mapelli Mozzi, founder of Banda Property, said: “Whilst I welcome the suggestion of a tiered system … I still believe the introduction of such a tax will not just hit the wealthy, but will affect thousands of home owners. I believe that as a result of these tax changes, investors will pull out of the £2m plus market to avoid their yields being crippled.” Richard Barber, partner at W A Ellis, added that he believes wealthy foreign investors will buy multiple properties with a price tag safely below £2m, therefore increasing the pressure on the market below that level in London and the South East, to the detriment of indigenous owner occupiers.

The Conservatives have rejected a mansion tax as an attack on aspiration, although the party has said it has taken action to curb loopholes in property taxation, including on corporate and offshore transactions.

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