Reforms to property taxation in the UK
In the latter half of 2014 much public debate in the UK focused around property taxation. Among the
most noteworthy developments are the Labour Party’s proposed ‘mansion tax’ and the change to the
stamp duty system announced by the Coalition Government in the Autumn Statement.
In mid-2014 the Labour Party announced their intention to introduce a ‘mansion tax’. The tax is a
variation on a 2009 proposal made by the Liberal Democrats. If implemented, the mansion tax will levy
an annual charge on UK residential properties valued at over £2 million. In recent discussion of the
proposed mansion tax, it has been suggested that when the tax is first introduced (most likely in 2016) all
UK homes valued over the set threshold will be subject to a payment. The size of the payment will be
progressive, meaning that the tax amount will be higher for owners of properties with greater values.
The most recent mansion tax proposal suggests that properties valued £2 million-£3 million will be
subject to a £3,000 annual payment, while the payment amount for properties valued above £3 million
will be based on the value bracket they fall within.
The system would include payment deferment for low income individuals - a measure meant to
safeguard cash poor residents of high-value properties many of whom are pensioners. However, this
may make such homeowners unwilling to sell in order to avoid making a back-dated mansion tax
payment from the proceeds of a sale.
A previous Cebr report, published in November 2014, found that the mansion tax, in its current form,
would likely fail to raise the £1.2 billion Labour expects it to. Additionally, several features of the tax
bring into question its fairness. Firstly, of the 96,592 total UK homes that would be subject to the tax in
2016 95% are in London and the South East, putting a disproportional burden on these regions.
Secondly, in order for gross revenue raised to equal the estimated £1.2 billion, the average mansion tax
payment in 2016 for home owners whose properties are valued above £3 million is £24,052. A payment
of this amount is likely to come as a burden to many homeowners, especially the ones that are asset-
rich, but cash poor.
Many such homeowners are pensioners that purchased their properties a long time ago for a modest
amount and have since seen their home value rise drastically due to strong price growth. The proportion
of over 65s in the SW3 postcode district, the district most affected by mansion tax, is 17% - nearly twice
the 9% average for inner London. W8 and NW3, the second and third most impacted postcode districts
also house more than the average proportion of over 65s at 12% and 14% respectively. Many of these
individuals will be asset rich but on low incomes and unable to pay the mansion tax, again bringing into
question the fairness of the system.
Stamp Duty Land Tax (SDLT)
One of the most substantial announcements made in George Osborne’s Autumn Statements was that of
stamp duty reform. The new system, which went into effect just after midnight on Dec 4, 2014,
eliminated the ‘slab’ structure previously in place, and made increases in tax more incremental and
gradual, much like the current system of income tax. The reform also aims to correct market distortions
caused by property prices clustering around value band thresholds.
© Centre for Economics and Business Research - Report Commissioned by Howard Cox for the FairHomeTax.UK Campaign