The reverberations of a mansion tax will be felt all the way down the property ladder, says Will Hollest, as he points out even more flaws in the latest set of plans to tax high value homes.
One of the most surprising reactions I’ve heard in response to the proposed Mansion Tax is that it won’t affect those who own properties worth less than £2 million. What do these homeowners think will happen to the value of their cheaper homes? If this ill conceived tax is introduced, then properties worth £2 million will drop in value overnight. Estate agents are already reporting drops of at least 10% at this level and I can foresee further falls if the tax is introduced. Suddenly, that £2 million property is worth £1.8 million (or less!). What happens to the £1.8 million property? It’s going to be worth £1.5 million while the £1.5 million property is going to be worth £1.25m. The reverberations will be felt all the way down the property ladder.
Furthermore, Labour has attempted to placate concerns about the tax by telling homeowners that the threshold will rise in line with house price inflation. What Labour hasn’t said is that this is likely to be average house price inflation for the UK. Who has ever known the London housing market to keep pace with the rest of the nation? This means that anyone who currently owns a £1.5 million house will probably be liable for the tax in a few years’ time. And what if that homeowner wants to make improvements to his or her property? Add an extension or dig out the basement and suddenly that house’s value is perilously close to the Mansion Tax threshold. I’m surprised the building trade in London has not been more vocal in its opposition to the tax.
Then there’s the problem with the estimates. A recent infographic published on PrimeResi estimated that over 11,000 properties would be liable for the tax while Zoopla estimated a similar number. I happen to live in Southwark and according to one of the surveys, 110 homes in my area would be liable for the tax. I know that figure is wildly inaccurate, though. The figures have been estimated on the last sale figure for individual homes plus average house price inflation figures for that area. It’s an admirable guess but it doesn’t take into account that some areas of the borough appreciate faster than others. I know, for instance, an entire street near me where prices are likely to be over £2 million for each home and there are close to 100 homes in that street alone. The houses rarely trade hands and when they do, they command premium prices. The owners must all be looking suspiciously at their neighbours thinking, “Please don’t put your house up for sale, please don’t put your house up for sale.” One sale would tip off the taxman to the value of those homes.
The problem is that this is inherently a tax on the middle classes of London. Successive governments have been able to tax this segment of the population heavily with raids on their pension pots, additional income taxes and stamp duty rises with little protest. Labour and the Lib Dems are counting on the middle classes to grumble and yet still pay this tax, too. Will they?Image: “Bourgeois Gentilhomme” by Moliere and Henri Wetstein, from the private collection of S. Whitehead Will Hollest, Robert Bailey Property 020 7352 0899 robertbaileyproperty.com The views of contributors are not necessarily those of PrimeResi or its Publishers