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23

8

Asset-rich cash-poor home owners

Under the current mansion tax proposal, homeowners with annual earning of less than £42,000 will be

eligible to defer mansion tax payments until the property exchanges hands. This can happen either

through sale of the property or death. It is likely that some asset-rich cash-poor homeowners will avoid

moving in order not to pay the accumulated mansion tax. This may have a doubly negative effect as

many high-value homes are kept out of the market and GDP-boosting activity associated with moving

houses e.g. hiring of workers, furniture purchases is limited.

Additionally, many of the asset-rich cash-poor residents of high value properties are likely to be

pensioners. Hence, the chance of property exchanging hands through inheritance is substantial. In this

instance, the value of all mansion tax back payments would be owed upon death of the property owner.

This charge would come on top of the existing inheritance tax and substantially increase the effective

death tax rate. The number of asset-rich cash-poor homeowners whose inheritance will be impacted by

the mansion tax will be significant, especially considering that the most impacted areas are populated by

many pensioners.

When the impact of the mansion tax is considered by postcode district, the three most impacted districts

are SW3 in Kensington and Chelsea, W8 also in Kensington and Chelsea, and NW3 in Camden.

Considering that 9% of inner London residents are over 65

6

, in all three postcode districts pensioners

account for a higher than average proportion of the population. In SW3, the postcode district most

impacted, over 65s account for nearly two times the average proportion of over 65s for inner London.

Table 15: Impact of mansion tax in 2016, by postcode district

Postcode district

Over 65s as % of total

population

No. of homes subject

to mansion tax

% of all London homes

subject to mansion tax

SW3

17%

5,859

7.3%

W8

12%

5,033

6.3%

NW3

14%

4,277

5.3%

Source: 2011 census, Land Registry, Cebr analysis

6 Based on the 2011 census

© Centre for Economics and Business Research