Property News Blog: Just how fair is the government's proposed mansion tax? By James Norton12th September 2013

It is apparent, from recent economic data, that the economy may well be starting to turn a corner. While talk of ‘green shoots’ is seen by some as overly optimistic, recent PMI (Purchasing Manager’s Index) data in services, manufacturing and construction all point to signs of a modest recovery. However, austerity cuts will continue to bite and talk of a ‘cost of living crisis’ will remain on the political agenda. It is in this context, that arguments for a Mansion tax must be examined.

Proposals for a Mansion tax or annual levy on high value properties have been continually mooted by Labour and the Liberal Democrats. The arguments for such a tax have been resisted by the Chancellor. Briefly, it would involve a tax on high value property over a certain amount e.g. £2m. It’s proponents argue that it is morally right that high value assets should be taxed while the government makes cuts in the welfare budget.

In short, Mansions should be taxed at the same time as bedrooms (the debate on the ‘bedroom tax’ deserves an entire article in itself). It has also been argued that taxing high value assets is more acceptable than income tax because income is mobile. You cannot easily move a mansion. However, despite all this it is necessary to ask the following:

How will such a tax affect those who are asset rich but cash poor? Given the rise in property prices over the past decade, how could the tax be justified in the context of (for example) an elderly couple who bought their house over 30 years ago but have seen its value risen since?

How would you define a Mansion? Would flats and bungalows be included?

How would the necessary valuations be carried out? A property bought in 1970 is likely to have risen in value considerably. New valuations are likely to be intrusive and overly bureaucratic.

If a Mansion tax is levied, would this be in addition to higher stamp duty and council tax bands? Would it not be easier to introduce new higher council tax bands?

Such a tax would have a disproportionate impact on London and the South East. where the majority of high value properties are located. To that extent, the tax may not raise the amounts that its proponents claim.

In balance, I would conclude that a mansion tax is not workable. While there are signs of recovery it is clear that the country will be braced for years of more austerity. Politicians, the media and campaign groups may call for a mansion tax in the interests of fairness, but their calls should rightly be ignored.  

About the author

James Norton is a paralegal at a top 100 firm and an aspiring lawyer with a passion for commercial property law. He writes a regular blog on the latest legal (and other) developments in commercial property law