The new property tax which the Liberal Democrats are pressing to be included in the Chancellor's Budget on 21 March would, it has been suggested, be levied at a rate of 1% on properties valued above £2 million. They say it would affect around 80,000 properties.
But Andrew Turner, partner at Smiths Gore, estimates that the figure of 80,000 properties over the £2 million mark is high. ‘Arguably such a tax won't act as a disincentive to people who are buying right at the top end of the market because for them an extra £10,000 to £15,000 per annum is manageable, but it will be an irritation,’ he said.
‘Where it will certainly have an impact is on those properties that should sell for just over the £2 million threshold, effectively putting a cap on values at £1,999,999,’ he pointed out.
According to Mike Harrison, partner at Saffery Champness Landed Estates and Rural Business Group, until there is a physical proposal on the table rather than just kite flying it won’t be possible to know how to deal with the proposed new tax.
‘There will have to be clear distinctions between high value residential properties in cities and towns and, for example, the small country estate where the house itself may be of relatively low value in the context of the overall property. Moreover, that property will invariably be run as part of a business rather than simply as a private residence. There must be clear rules with regard to how the threshold is set,’ he said.
‘We are also in danger of alienating overseas investment by continuing with this trend of taxing the very wealthy for a limited return. The £30,000 levy on non-doms launched in 2008 that is soon to become £50,000 for some, saw an estimated 16,000 of them quit the UK in 2010/2011 with many taking their business and their bank accounts with them. Some of those who did not go then may just see an additional tax on their property, whether it is situated in town or country, as a further disincentive to stay here, or to consider buying here in the first place,’ he added.
Turner believes that it is not a concept that can work nationally. ‘It's full of anomalies. What happens for instance if property values drop? Would an owner be rebated for the tax paid? How often would valuations be undertaken and who would do this? What if improvements made by the owner with income on which he or she has already paid tax, lift their property over the £2 million threshold? Isn't that just a bit unfair?’ he suggested.
‘What about leasehold properties, or alternative ownership structures? Nick Clegg and Vince Cable are looking at the number of £2 million plus properties in London and the Home Counties and thinking there's a tax goldmine, but it's just not that simple,’ he added.
Harrison concludes that talk of a Mansion Tax is a distraction. ‘A far bigger issue is that of funds and property held offshore and not correctly reported and we expect this to be an issue of substance that will be a target for the Chancellor in his March Budget,’ he said.
