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If a mansion tax were to be introduced in the UK it would be levied overwhelmingly on London and the South East of England, with 86.4% of all £2 million plus properties located in those two regions, new research suggests.
The new property tax, dubbed the mansion tax because of the price level proposed for it to start at, was first put forward as an idea four years ago and has come and gone as an idea but never been completely approved or disapproved.
According to property experts this has left some uncertainty at the higher end of the property market since it was first proposed by the Liberal Democrats, part of the current coalition government and a party that still back the plan to tax properties at this level at an annual rate of 1%.
The proposal is also backed by the opposition Labour party and both political parties have suggested that it would raise between £1.7 billion and £2 billion annual for the government's coffers.
Now an analysis based on official data by property firm Knight Frank suggests it would actually raise much less, around £1.3 billion annually, but this is calculated before exemptions are taken into account.
Knight Frank says that in order for the amount suggested to be raised the value threshold for the tax would need to be reduced from £2 million to £1.5 million in order to raise £1.7 billion, and reduced even further to £1.25 million to raise £2 billion in revenue. But it would have to go even lower in real terms once exemptions and the cost of collection are taken into account.
The firm also says that reducing the threshold to £1.25 million would more than double the number of properties affected from 55,000 to 140,000. And heritage properties would be targeted, with 16% of all £2 million properties being listed buildings compared to less than 2% of all sub £2 million properties.
Also with a £2 million threshold nearly one in 10 properties defined as mansions for the tax would be one and two bedroom flats.
Further calculations shows that 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 £540,000 or more.
This means that some first time buyers buying through the government's flagship Help to Buy scheme which has an upper limit £600,000would be paying a mansion tax before they finished their mortgage term.
'It is clear from our investigation of official data that a £2 million threshold is too high to deliver a tax take of £1.7 billion, let alone £2 billion. The main issues include the estimate of the number of £2 million plus properties and their average value. If either turn out to be too low, then obviously tax take would rise,' the report explains.
'Even if the gross tax take were to exceed £1.3 billion, the impact of exemptions, valuation shifts, changes to owner behaviour and the cost of collection and valuation would be need to be accounted for and would contribute to a lower net tax take,' it adds.
The report also points out that details of potential exemptions to the tax do not appear to have been worked up by either Labour or the Liberal Democrats. However Labour MP Chris Leslie has hinted that a list of exemptions does exist in the form of a list of exceptions to the recently introduced Annual Tax on Enveloped Dwellings (ATED) which could also be used for a future mansion tax.
The exemptions for the ATED are fairly wide ranging and include properties owned and used by charities or social housing providers, farmhouses and some properties used by businesses to house employees and properties rented to third parties.
'Removing exempt properties will obviously reduce the number of chargeable properties and the associated tax take, potentially significantly. Without a final list of exemptions it is an impossible task to assess the significance of this issue,' the report concludes. propertywire
The new property tax, dubbed the mansion tax because of the price level proposed for it to start at, was first put forward as an idea four years ago and has come and gone as an idea but never been completely approved or disapproved.
According to property experts this has left some uncertainty at the higher end of the property market since it was first proposed by the Liberal Democrats, part of the current coalition government and a party that still back the plan to tax properties at this level at an annual rate of 1%.
The proposal is also backed by the opposition Labour party and both political parties have suggested that it would raise between £1.7 billion and £2 billion annual for the government's coffers.
Now an analysis based on official data by property firm Knight Frank suggests it would actually raise much less, around £1.3 billion annually, but this is calculated before exemptions are taken into account.
Knight Frank says that in order for the amount suggested to be raised the value threshold for the tax would need to be reduced from £2 million to £1.5 million in order to raise £1.7 billion, and reduced even further to £1.25 million to raise £2 billion in revenue. But it would have to go even lower in real terms once exemptions and the cost of collection are taken into account.
The firm also says that reducing the threshold to £1.25 million would more than double the number of properties affected from 55,000 to 140,000. And heritage properties would be targeted, with 16% of all £2 million properties being listed buildings compared to less than 2% of all sub £2 million properties.
Also with a £2 million threshold nearly one in 10 properties defined as mansions for the tax would be one and two bedroom flats.
Further calculations shows that 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 £540,000 or more.
This means that some first time buyers buying through the government's flagship Help to Buy scheme which has an upper limit £600,000would be paying a mansion tax before they finished their mortgage term.
'It is clear from our investigation of official data that a £2 million threshold is too high to deliver a tax take of £1.7 billion, let alone £2 billion. The main issues include the estimate of the number of £2 million plus properties and their average value. If either turn out to be too low, then obviously tax take would rise,' the report explains.
'Even if the gross tax take were to exceed £1.3 billion, the impact of exemptions, valuation shifts, changes to owner behaviour and the cost of collection and valuation would be need to be accounted for and would contribute to a lower net tax take,' it adds.
The report also points out that details of potential exemptions to the tax do not appear to have been worked up by either Labour or the Liberal Democrats. However Labour MP Chris Leslie has hinted that a list of exemptions does exist in the form of a list of exceptions to the recently introduced Annual Tax on Enveloped Dwellings (ATED) which could also be used for a future mansion tax.
The exemptions for the ATED are fairly wide ranging and include properties owned and used by charities or social housing providers, farmhouses and some properties used by businesses to house employees and properties rented to third parties.
'Removing exempt properties will obviously reduce the number of chargeable properties and the associated tax take, potentially significantly. Without a final list of exemptions it is an impossible task to assess the significance of this issue,' the report concludes. propertywire
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