The proposed mansion tax may deter wealthy investors from buying costing government revenue and is focused on London properties.
New data from Savills shows the Labour’s proposal to introduce a mansion tax would result in £1 billion lower government revenues as wealthy investors avoid buying property costing £2 million or more.
Almost 97% of the mansion tax would be applied to homes in London and the south east with a levy of £15,000 on each property to provide extra funding for the NHS.
Mansion homes already contribute £870 million in stamp duty tax each year which is five times more than that collected from the north east of England.
For wealthy home movers wanting to trade up in London, they may find their next property is subject to the mansion tax which means they need a larger deposit or mortgage.
Mansion tax revenues
Labour’s mansion tax proposes to raise £1.6 billion in extra revenue and the money would be used to employ another 36,000 doctors, nurses, midwives and care workers.
The tax would be disproportionate as it would be paid for mainly by families living in London. It could also mean fewer home movers and investors buying property in the capital priced over £2 million with a wider impact on revenues.
It is unlikely that first time buyers in London could afford to purchase homes at this price point due to the substantial deposit required.
With higher house prices in the capital buy-to-let landlords will look to outer London for affordable properties to help improve rental yields.
Savills suggests there could be leakage from other revenue sources such as stamp duty, inheritance and capital gains tax.
It is doubtful the revenue would be as much as expected and could even reduce overall revenue by £1 billion.
Labour’s unfair tax proposal
There are many critics of the proposed mansion tax being focused only on property value this is not always linked to income.
For homeowners who have worked hard over their lives and invested in their property are now retired, being asset rich but income poor. The £2m plus homes have already suffered from higher stamp duty tax rising from 4% to 5%.
To avoid the mansion tax remortgage buyers may consider downsizing to a lower value property although they would be subject to stamp duty tax on their next home.
Savills have proposed a fairer tax would be to change the council tax bands. Currently in Westminster the highest priced properties pay about £1,000 per year, similar to a two bedroom flat.
A higher council tax charge for properties priced at £2m plus could be used to reduce council tax for those on low incomes or for new build homes.
For older homeowners on low incomes, the considerable value in their property allows the equity release mortgage buyer to access cash to cover the cost of living and future mansion tax.
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