£2m Mansion Tax: The political squeeze

£2m Mansion Tax: The political squeeze




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Over the past month the political parties hosted their respective annual party conferences across the country, but cracks are ever-more apparent now within the Coalition government as a result of the on-going £2 million “mansion tax” debate and the plans for the next squeeze on welfare before the next election. Jason McGee-Abe summarises the events of the last few weeks…

The conferences provided not only the usual platform and opportunity for politicians to outline current stances and to discuss policy, but a glance at the political divisions which are emerging within the government over the plans for new levies on the rich and Vince Cable’s “mansion tax” calls.

The Prime Minister stated that “we have to find £16 billion of spending reductions for the year 2015/16, by the next general election”. Nick Clegg, who supports a mansion tax, has stated that whoever comes into power in 2015 will have to introduce another tranche of austerity measures and there will need to be another squeeze on welfare.

Chancellor George Osborne rejected Liberal Democrats calls for a mansion tax - and an annual levy on wealth - saying those ideas were not the right way to make sure the rich made a greater contribution.

Lib Dem delegates voted overwhelmingly, with only two against, in favour of the motion which would affect one in 200 homes according to the Telegraph, on whether a new £2 million mansion tax should be implemented.

Both David Cameron and Osborne said that they will be taking further action to make sure the richest people in the country pay their fair share, but ruled out the mansion tax.

Cameron said in an interview on The Andrew Marr Show prior to the Conservative conference: "We are going to take further action to make sure the richest people in this country pay their fair share.

"I don't actually believe we should be a country where, if you work hard, you save, you buy yourself a house...that every year [it] comes after you with a massive great tax [mansion tax], and so that is not happening."

The Chancellor ruled out Lib Dem plans for tax on multi-million pound properties and also blocked new council tax bands for more expensive properties. He said: “I don’t think a mansion tax is the right idea because before the election it will be sold to you as a mansion tax and then after the election a lot of the people in Britain are going to wake up and find their more modest homes have suddenly been reclassified as a mansion.”

In light of Cameron’s and Osborne’s refusal to implement a mansion tax, and with the plan becoming more of a centre piece of Lib Dem policy from their conference and Cable’s latest grass-roots campaigning for it to be implemented, many will now ask in which direction will the Coalition take to ensure richer people will “pay their fair share” and also keep political stability in a wavering Coalition government. Will the mansion tax be the issue that cracks the Coalition?

Many would believe that if you are going to rule out the mansion tax from the "very richest" in society, it is hard to see what other effective wealth taxes, and taxes on the highest paid, they will come forward with. However, a big issue is who one deems to be the richest, as some might be asset rich but income poor, and another is the potential detrimental effect that will arise on property investors.

Bricks and mortar though have been the best-performing asset and investment for most people over the last decade. Many have saved up their money and put it into property, but it would be a very big mistake to assume that someone who owns a £2 million mansion is automatically seen as rich, as they may be asset rich but income poor. Would it be right for a pensioner who has saved up for years for their dream home, is retired and has no fixed income, to be charged with an annual tax for saving up for their home?

Another problem is that a property's value is only realised on selling or re-mortgage. It is likely that each high-end property owner may have to arrange a re-valuation to determine whether they are liable and a failure to do so will result in a criminal offence. The general revaluation of properties across the country is set to cost approximately £260 million and take up to three years.

Most homeowners could be forgiven for wishing they had such problems and may take the view they have nothing to worry about. Lloyds TSB estimates that just 38,000 of all the homes in Britain are worth £2 million or more and 84 per cent of these are located in London and the south east.

But these homes are already subject to a form of mansion tax in the shape of the new top rate of stamp duty, which requires buyers of homes priced at £2 million or more to pay £140,000 or more in tax.

Land Registry figures have shown that sales of homes worth more than £2 million have soared by nearly 80 per cent year-on-year, but house prices generally have remained flat.

A survey released two weeks ago by Harris Interactive for the Metro revealed that out of 1,164 polled, 57 per cent of Britons would support such a levy.

Cable has proposed for the tax to be levied at one per cent of the extra value of any property above £2 million. For each £100,000 above £2 million, it would cost the homeowner an annual £1,000 and therefore a property valued at £3 million would incur a £10,000 tax per annum.

Clegg has said that he’s not going to allow a squeeze on welfare and more austerity of that kind unless the people at the top pay more. Many now believe that the Lib Dems are breaking ranks with the Coalition and Cable's petitioning last week may be an early indicator that he is positioning himself to challenge Clegg for the leadership. Cameron's decision on the matter could put him on a collision course with the Lib Dems, especially with some predicting that the next election will lead to a hung parliament and the Lib Dems being the key for another Coalition to be formed.

We await the Chancellor’s Autumn Statement, due in December, with great interest.

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