Labour’s pre-election pledge to tax owners of properties over £2million was greeted with mixed reviews when it was unveiled in September last year.
Critics of Labour’s mansion tax say that it could be “very disruptive” to the housing market, whereas supporters claim that wealth taxation will have a positive effect on the public purse.
But what exactly is the mansion tax? And how would it affect those looking to buy and sell higher value property in Wales? Find out more by reading this brief overview from Howells Solicitors.
Mansion Tax – Explained
The mansion tax, if put into place, would be an annual tax on properties worth over £2million. The vast majority of houses in the UK are worth far less than this, and as such the tax would apply to less than 0.5% of homes in the country. The £2million threshold would rise in line with the average rise of prices of high-value properties – so the number of properties paying the tax will not increase unless more are built.
The mansion tax will be progressive, and use a simple banded system. This means that those owning properties worth £2-3million will only pay an extra £250 a month as a result. Owners and investors in properties worth tens of millions of pounds will have to make a much larger contribution, even those who live overseas. However, the mansion tax will protect those who are asset-rich but cash-poor. Those in high-value homes who don’t have high incomes will have the right to defer paying the mansion tax until their property is sold.
Mansion Tax – The Debate
When talking to the Huffington Post about the proposed mansion tax, Kate Barker, a former member of the monetary policy committee, said:
“It would mean that houses over £2m would decline in value according to the discounted view people have of the tax paid on them.”
This could put downward price pressure on the entire market, a prediction that has been met with mixed reviews.
On one hand, decreased house prices could result in thousands of buyers who have purchased over the past seven years going into negative equity. This could reduce consumer confidence, discouraging spending and pose a considerable risk to the economy as whole.
In contrast, it’s also been suggested that reduced house prices would be a positive thing, enabling first-time buyers to get a foot on the property ladder and increasing the percentage of buyer-occupied homes.
Either way, Barker is not alone in her concerns.
The Royal Institute of Chartered Surveyors also warn that the tax will slow the housing market and undermine its recovery. When speaking to the Telegraph, Jeremy Blackburn, head of policy, said:
“Given that a high proportion of these properties are in London and the South of England, there is the potential for this to deter or distort patterns of investment, affecting the general confidence in the residential sector as the recovery picks up.”
In short, this means that it’s feared that the mansion tax will curtail building of new homes in London and the South East of England, where a shortage of supply has been one of the factors pushing up prices.
But is this simple scaremongering? It’s been pointed out that even in London, the tax will only affect the wealthiest 3% of homeowners, and even less in the majority of the South East.
Public Opinion
Despite the issues raised above, it should be noted that the proposed mansion tax would directly affect less than 0.5% of homes in the country, and that the controversial policy is actually quite popular with the electorate.
According to a survey of more than 2000 adults conducted by the University of Birmingham, support for the tax is highest in Wales, at 63%. Support for the tax was second highest in Scotland at 62%, with 53% of the rest of the country either strongly supporting it or tending to support it.
Perhaps this is unsurprising, as a study of estate agent data suggests that there are only 87 homes that would be affected by the tax in Wales.
Who’s Worst Affected?
The run up to any general election is accompanied by a period of uncertainty, and this often causes stasis in the property market. This could affect anyone looking to buy or sell at the moment.
The real implications of the mansion tax are difficult to gauge. However, it seems that negative effects would be felt most keenly by those at either end of the property scale, with those looking to buy or sell moderately priced homes such as the majority of those available in Wales minimally affected.
Howells Solicitors
Howells Solicitors is one of the leading conveyancing law firms in Wales, and we pride ourselves on the high level of legal service that we provide our clients. We specialise in all areas of conveyancing, and our dedicated team of experts are on hand to help you, whatever your conveyancing needs.
