The politics of the mansion tax

    The politics of the Mansion Tax

     

    Back in the news
    The Mansion Tax (aka the Annual Levy or Mansion Tax-lite) remains in the news, particularly following the recent statements of the various political parties.  The consultation period closed in August and the draft legislation was due to be published in the next month, but it appears that Chancellor George Osborne has ruled this out for the duration of this government.  Notwithstanding this, it might remain on the agenda of the other political parties.

    Unintended consequences
    The proposed Mansion Tax would have been an Annual Levy on private residential property held by ‘non natural persons’, typically companies, but it would not (as proposed) apply to individuals.  Whilst corporate structures and in particular off-shore companies have been used by some individuals for Stamp Duty avoidance, there may have been collateral damage for those who have such structures but did pay Stamp Duty on purchases.  In addition there are those who are non resident in the UK and are required to have corporate structures by their own tax jurisdiction, as well as owners of heritage property who have used a corporate structure for Inheritance Tax planning.  In other words there could have been some unintended consequences of the new tax.

    Disproportionate effect on London?
    The proposed Annual Levy would have been payable on houses worth in excess of £2m, which suggests that it would fall predominantly on houses in London and the south of England, as that is where the most expensive properties generally are, and certainly where most overseas owners will have property.  This would no doubt have had political consequences, not least as far as the City of London is concerned, especially  given the recent comments about President Hollande’s new Wealth Tax proposals for France, and the potential exodus of the wealthy from France.

    Asset rich, cash poor?
    The proposed Levy took no account of the ability to pay, as it was based on asset value rather than income, and given the substantial increase in property values of the last 20 years, there may well have been those who cannot afford to pay.  At present the highest Council Tax band would normally result in an annual charge of around £3,000 per annum, as opposed to the average charge of around £1,500.  The lowest band of the new levy would have been £15,000 per annum, increasing to a maximum of £140,000 per annum.

    Double taxation?
    At present, Council Tax is collected by the local authority.  However, in the draft consultation produced by the Treasury, it was proposed that the new annual levy will be administered by HMRC, which raises the prospect of double taxation.  Would those paying the new Annual Levy also have to pay Council Tax in addition?

    What happens next?
    The political pressure for some form of Mansion Tax is evident, particularly for the other political parties.  However, it appears that Mr Osborne has ruled this out for the time being.  Nonetheless, it does appear that it will remain on the agenda of both Labour and Liberal Democrats therefore it might well make a return to party political manifestos at the time of the next general election.

     
     

    Key contacts

    Philip Eddell

    Philip Eddell

    Director
    Country House Consultancy

    Savills Newbury

    +44 (0) 1635 277 709

    +44 (0) 1635 277 709