Mansion Tax Possible Next Year

Danny Alexander, the Chief Secretary to the Treasury, has announced that officials have begun work on a mansion tax that could be levied as soon as next year. Mr Alexander claimed there was growing political support for a tax on expensive houses, saying owners should pay more to help balance the books.

"There's a consensus among the public that a modest additional levy on higher value properties is a fair and reasonable thing to do in the context of further deficit reduction," he said. "It's important that the burden is shared."

Homes worth more than £2m to be targeted

Mr Alexander said the new tax would not be "punitive" but insisted, however, that the Liberal Democrat party is in favour of wealth creation. He said that officials had been working on the technical details of applying a new tax, disclosing that he planned to reveal the results of that work soon. Politicians have indicated that homes worth more than £2m or more are being targeted for the potential tax.

Business Secretary Vince Cable stressed last week that home-owners would pay no tax on a house worth £1m, or even £2m. But a 1% levy would be applied on the value above £2m. Therefore, a home worth £2.5m would attract a mansion tax annual charge of £25,000. He added that future governments would and could adjust the tax for inflation.

Warning that tax could be “self-defeating”

However, industry experts have warned that a mansion tax would dent house prices and slash the income from other taxes, such as inheritance tax and stamp duty, by as much as £4bn within a decade. They said that an annual levy on homes worth more than £2m, risked being "self-defeating" because of its unintended consequences. This is because applying an annual levy on properties worth more than £2m would hit house prices at that level.

Meanwhile, it was also estimated that about one in ten of the householders affected might have to take out a loan to cover the annual payment. Last week the Independent newspaper argued that it will not only be the bankers or bond dealers in areas like Knightsbridge in London that could be hit, but the people who’ve owned a house in a certain area for several years. “Since when has a semi-detached house in Richmond or Wimbledon been a mansion?” it asked.

If you would like further information about the possible mansion tax or any other residential property matter, speak to a property lawyer.

IBB's private client group includes specialists in residential conveyancing. Contact a conveyancing solicitor by calling us on 01494 790000 or emailing conveyancing@ibblaw.co.uk.