Mansion Tax Changes
"Any change is likely to be unpopular and commentators have been quick to point out that such a tax increase is likely to fall disproportionately on London and the South East."
More Mansion Tax?
It does appear that new forms of ‘Mansion Tax’ are again on the horizon, with various positive comments from the different political parties. This would be in addition to the Annual Tax on Enveloped Dwellings (ATED) that was introduced in 2013 for properties owned by ‘non natural persons’, i.e. companies and partnerships, valued in excess of £2m. Payments are already a minimum of £15,400 per year rising to a maximum of £143,750 per year for those properties worth in excess of £20m.
Lower value properties will also be affected by ATED
It was announced in this years budget, that as of April 2015, ATED will be extended to include residential properties worth between £500,000 and £2m, again owned by ‘non natural persons’. Annual payments will be £3,500 for properties between £500,000 and £1m, and £7,000 for properties between £1m and £2m. This is a significant change, as houses valued at less than £2m are mostly not mansions and many farming and land owning businesses are likely to be affected.
It is possible to avoid ATED
It should be emphasised that ATED is payable on the ownership structure, rather than the property, therefore alternative methods of ownership such as personal or Trust ownership will not necessarily attract ATED. There are also a number of reliefs available including:
• Properties let to a third party or employee
• Open to the public
• Part of a property trading or development business
• A farmhouse
As such payment of the tax will not be necessary if the reliefs apply. Nonetheless the reliefs will not be applied automatically; an annual ATED return will still need to be submitted
Council Tax or Mansion Tax?
In addition, the Liberal Democrat Party announced in April 2014 that they would now favour new Council Tax bands for higher value residential property – this is a move away from their earlier proposal that an annual Mansion Tax should be charged at equivalent to 1% of a property’s capital value. At present the highest band of Council Tax is Band H for houses that were worth more than £320,000 in 1991. Typically a Band H property will pay Council Tax of £2,536 per annum in England, but under the Lib Dem proposals a higher value property could pay as much as £5,000 per year. This proposal seems to have more widespread support, indeed some members of the Labour Party are on record as supporting such an idea, and even Conservative Mayor Boris Johnson has made similar suggestions.
More likely than not
Any change is likely to be unpopular and commentators have been quick to point out that such a tax increase is likely to fall disproportionately on London and the South East. It has also been noted that France has had for some time an equivalent Mansion Tax, known as the ISF (Impôt de Solidarité sur la Fortune), and that the effects of this have arguably been counter productive. Notwithstanding this, it does appear that some form of increase does look more likely than not to happen, whether it is changes to Council Tax, or a new Mansion Tax. It should be noted that the original ATED was predicted to raise £20m; in fact it has already raised closer to £100m per year. Moreover the ATED will rise with inflation whilst the bands do not, meaning more and more properties will be caught. It does look as though the political parties have found a new way to raise revenue.