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10

3

Mansion tax threshold

The rate at which the £2m property threshold will increase after 2016 has been subject to much debate

and revision. It was initially suggested that the threshold would increase in line with the average growth

in UK house prices. Table 4 below shows the property value threshold above which homes become

subject to the mansion tax, assuming the threshold is linked to average UK home prices.

Table 4: Mansion tax threshold, assuming link to average UK home price

Property value threshold

(£)-1

st

proposal

2016

2,000,000

2017

2,059,987

2018

2,115,206

2019

2,178,242

2020

2,252,059

Source: Cebr forecasts

However, the Labour Party’s most recent mansion tax proposal suggests that instead of rising in line with

average UK house prices, the threshold will rise in line with average prices for high-value properties. One

important consideration pertinent to the most recent proposal is that the number of housing transaction

at the very high end of the market is so limited that it is very challenging to determine trends. In the

2013-2014 tax year, prime properties i.e. those properties valued at over £2m accounted for just 0.4% of

total residential property transactions. Therefore, it is questionable with what degree of accuracy

changes to the mansion tax threshold will follow underlying high-value property price movements.

The motivation behind the change is to prevent new, more modest properties from being dragged into

the “mansion” category. Hence, the assumption is that prices of high-value properties in the post-2016

period will grow much faster than average UK and average London house prices. Based on recent trends

in the housing market, there are reasons to question this assumption. Figure 1 compares the 12 month

percentage change in average price for high-value properties

1

and all UK properties.

1 In order to analyse price trends in the high-value market, data on prime central London housing is considered. As the overwhelming majority of homes subject to

the mansion tax are in this area, this market segment is most representative of the proposed policy’s impact on the housing market.

© Centre for Economics and Business Research