By Martin Williamson, Head of Residential Property, Latimer Hinks Solicitors www.latimerhinks.co.uk
You may have read about it in the press and heard it on the news, but what exactly is the Mansion Tax and how is it likely to impact on owners of UK property?
The Liberal Democrat Party originally mooted the idea of a Mansion Tax in 2009 in the run up the 2010 General Election, by suggesting initially that all properties valued at over £1m should be taxed annually. Support for this proposal was resurrected at the Liberal Democrat Party conference in 2012 when the threshold was raised to £2m. The Conservative party - the Liberal Democrats coalition partner - ruled out the introduction of a Mansion Tax and instead the coalition Government agreed to more targeted tax measures, with the introduction in 2013 of the Annual Tax on Enveloped Dwelling (ATED) rules and the increased Stamp Duty Land Tax (SDLT) thresholds for properties worth over £2m.
Talk of a tax on these larger properties proved popular with the electorate and garnered support from the Labour Party. In 2013 the Labour Party picked up the Mansion Tax mantle by announcing that if they won the next General Election it would introduce such a tax. This policy was reiterated at Labours party conference in September 2014, with the stated aim of raising £1.2bn to fund the National Health Service.
The move by the Labour party more recently has been towards a banded proposal, drawing on the current ATED model. Little detail is known at this stage, but indications suggest that properties valued at between £2m and £3m would pay £3,000 per annum, but this has not been confirmed and there is no indication of the amount of the charge for properties worth more than £3m.
According to the Cambridge English dictionary a mansion is defined as a very large, expensive house. For the purposes of the Mansion Tax, it is a property worth in excess of £2m.
The effects of the Mansion Tax are likely to be felt the most in London where it is estimated that nearly 90% of all properties in the UK valued at more than £2m are located. The inflated nature of London property prices means that many of these properties in the capital cannot be described as very large. By way of an example, an internet search reveals that £2m in Knightsbridge would buy a very modest two bedroom maisonette above a dry cleaners or a modest two-bedroom flat in Chelsea.
What if, as mooted in some quarters, the Mansion Tax is then rationalised to include properties of lower market value in the North East for instance in the interests of equity?
It is not clear at this stage how a Mansion Tax will interact with existing property taxes, including ATED. When the idea of a Mansion Tax was first raised by the Liberal Democrats it was in the context of a very different tax landscape. Since then the Government has introduced the ATED rules and increased the Stamp Duty Land Tax charges aimed at international owners of high value UK property - i.e. property worth more than £2m - which, for those who are subject to them, are already a Mansion Tax by another name.