The Sunday Times: The Real Mansion Tax Losers
Sun 28 Sep 2014
Revealed: The real losers under Labour's mansion tax scheme
Pensioners could be forced to sell their homes and families will struggle to pay, writes Anna Mikhailova
About 110,000 homeowners living in properties worth more than 2million will be hit by a mansion tax if Labour wins the next election.
The tax poses a particular thread to elderly people with large home living off modest, often fixed, incomes, who may not be able to afford the extra tax bill and be forced to sell up.
Labour has said it plans to raise 1.2billion a year from a tax on homes worth more than 2million, with the money used to help fund the NHS. This could mean every home that falls into the mansion tax bracket paying, on average, about 11,000 a year.
The relatively small tax take could be outweighed by a fall in stamp duty receipts, as sellers lower their asking prices to below 2million, avoiding the 7% stamp duty rate.
Charlie Ellingworth, the founder of the homebuying agency Property Vision, said: The problem with the mansion tax is there is so little detail the results is uncertainty on a large scale. It is straightforward wealth tax, but will be perceived by those who have to pay it as yet another layer of income tax.
How many homes would be affected?
More than 108,000 homes would fall into the mansion tax bracket today, according to the property website Zoopla. By far the largest number are in London 85,461 with an average value of 3.7million.
There are 14,261 homes that qualify for the tax in the southeast, 3,718 in the east, 2,079 in the southwest and just 895 in Scotland. Zoopla estimates that the average annual tax in the capital could be nearly 17,000.
Liam Bailey, head of residential research at Knight Frank, said: The reality is this is a tax on London and southern England.
How many people typically buy homes for more than 2m every month?
In June, 206 homes were bought for more than 2million, according to the latest Land Registry figures a 33% rise on the number acquired in the same month last year one of the biggest percentage increases in any of the price bands. For example, the number of homes sold for 100,001 150,000 fell by 29%.
How would the mansion tax be charged?
Details have not been announced, although it is expected to take the form of an annual levy. Last week the shadow chancellor Ed Balls said the tax would be tiered like income tax so the owners of the most expensive houses pay significantly more than those closer to the 2m mark.
The 2m threshold may rise each year to reflect average house price inflation. Scott Corfe at the Centre for Economics and Business Research, said: This would not be fair on London households where prices tend to grow at a much higher than average rate, dragging more Londoners into the mansion tax threshold.
How would properties be valued?
Last week Labour said homeowners would probably have to declare the value of their homes themselves, prompting some to predict chaos.
Rob Harbron, senior economist at the CEBR, said: Some sort of official vetting process will be needed, so the government will need its own system for valuing houses as well. Otherwise there would be no telling if valuations were accurate. It would not be a cheap exercise to implement.
Ed Mead, head of the estate agent Douglas & Gordon, said: Mansion tax talk fails to recognise the absurd cost of implementation. There will be many challenges to valuations. Corfe added: It would require a series of property revaluations that would be subject to significant dispute.
What if my house is worth just under 2m?
Experts predict up to 150,000 homeowners will need to spend money on professional valuations to see if they qualify for the tax. Bailey of Knight Frank, said: There are about 100,000 150,000 homes in the 1.5m-2m bracket, and these people may feel obliged to have their properties valued to make sure they do not fall foul of the new tax. If you bought a house worth 1m 10 years ago, would you be confident you knew its current value? Yet those who give an incorrect valuation could face penalties.
The average valuation costs 400 to 650, according to the Royal Institute of Chartered Surveyors. A 2m country pile with outbuilding and land could cost over 2,000 to be valued.
How would pensioners pay for the tax?
Those whose money is tied up in the value of their homes, and who have no regular income, are the most vulnerable to the new tax. Bailey at Knight Frank, said: If the tax is poorly implemented then individuals could find they have to sell their properties. Non-working households, especially pensioners, are particularly at risk.
Labour said there would be safeguards for people without a high income who live in an expensive property, though it failed to specify what. One option could be to defer payment until the owner dies and the house is sold.
What would it mean for mortgage borrowers?
Those with large mortgages may struggle to meet the additional costs. People looking to re-mortgage may face problems if banks factor in the new tax to their affordability calculations and cut the amount they can borrow.
How can you avoid paying it?
Charles McDowell, head of the eponymous London estate agent, said: People are already talking about a system in which properties could be split up, to avoid reaching the tax band. This could be done by creating different ownerships of different parts of the property to create lots of under 2m each. For example, the main house and outbuildings on a country pile could be split and owned by separate family members. It would become a nightmare to police.
Could I try to hide my purchase of a 2m-plus home from the Treasury?
Vendors are turning to secret sales to try to hide the fact that their house was ever marketed for a price of more than 2m particularly if it didnt find a buyer. McDowell said: We are seeing more off market sales as people do not want their properties seen as for sale on the open market in case they do not sell. This is in part down to uncertainty over the mansion tax plans.
What does it mean for property prices?
Whether the tax comes in or not, it is already having an impact on the housing market. The uncertainty has meant that people are holding off buying and selling.
Nick Ashe at Property Vision said the 2m tax band will also mean competition for homes just under 2m will be fierce.
Peter Rollings, chief executive of the London estate agency Marsh & Parsons, said: Undue government interventions and Labours mansion tax would not only injure Londons international reputation as a city open for business, but also potentially stifle the market.
What are the Liberal Democrats proposing?
The idea of a mansion tax originated with the Lib Dems, who in 2009 proposed an annual levy on homes of over 1m, subsequently increased to 2m. The Lib Dems said the party supports a banded levy on high-value homes.