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Think Tank Criticizes UK Mansion Tax Proposals

by Robert Lee,, London

20 February 2015

The Centre for Policy Studies, a think tank, has said there is no longer a case for a UK "mansion tax," as recent stamp duty reforms have significantly increased the tax burden on higher value properties.

The claim is made in a new report, The Shrinking Case for a Mansion Tax, written for the Centre by Lucian Cook, Director of Research at estate agency Savills. According to the Centre's Director, Tim Knox, a mansion tax "is little more than an appeal to envy, and should not be presented as an integral part of any coherent [election] manifesto."

In December 2014, the Conservative Chancellor, George Osborne, transformed the Stamp Duty Land Tax (SDLT) from a slab-based system to a band-based system. The first GBP125,000 (USD193,172) of the property price is now exempt from SDLT. A rate of two percent is payable on the portion up to GBP250,000, five percent up to GBP925,000, ten percent up to GBP1.5m, and 12 percent on the value above GBP1.5m.

According to the report, these reforms have increased the tax burden on so-called mansions by GBP1.1bn. The top 1.6 percent of households now pay almost half of all SDLT.

"In 2009, stamp duty was levied at four percent on the sale of properties worth over GBP2m. Today, the average effective rate is ten percent. This means, on a like-for-like basis, an additional GBP1bn will be raised from stamp duty on property worth over GBP2m. The large increase in both property prices and tax rates over the last five years has compounded the tax paid on transactions of individual properties. For example, the tax paid on a house now being sold in south-west London for GBP2.5m has increased by 405 percent since 2009," the report states.

The report also points out that the Government's introduction of, and subsequent changes to the Annual Tax on Enveloped Dwellings (ATED) have added at least another GBP100m a year to the tax paid by "mansions." The ATED came into force in April 2013 and is payable by companies that own high value residential property in the UK, and changes were made in the 2014 Budget to lower the valuation threshold from GBP2m to GBP500,000, staggered over two years, and to raise the charge by 50 percent.

The report warns that a mansion tax could significantly erode existing property taxes. Savills forecasts that at least GBP1 in every GBP6 raised by a mansion tax would be lost in stamp duty and inheritance tax receipts. In addition, a mansion tax would not differentiate between those who have the means to pay and those who do not, and would not account for an individual's net property worth, because it would not take into account the level of debt secured against the property in question.

The Labour Party has said that it would prioritize the introduction of a mansion tax if it wins the May 7 general election. Shadow Chancellor Ed Balls has outlined plans for a new tax on "prime value properties" worth more than GBP2m in today's prices. He estimates that the levy would generate GBP1.2bn a year in revenue, which the party would spend on improving the National Health Service (NHS). The Liberal Democrats – the junior party in the UK's Coalition Government – had previously pushed for a mansion tax, but is now calling for a "high-value property levy."

Cook said: "The recent reforms of property taxation are raising as much from high value properties as any mansion tax. If, in addition to these reforms, a mansion tax were introduced after the next election, it would add a layer of complexity and unfairness into the tax system for residential property. On top of that, the economic impact of a mansion tax is impossible to quantify but would clearly be damaging, not least in seriously undermining the attraction of the UK (and London in particular) to overseas investors."

TAGS: inheritance tax | tax | property tax | real-estate | United Kingdom | tax thresholds | tax rates | stamp duty | revenue statistics | tax reform | inflation

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