Following Ed Balls’ announcement regarding Labour’s mansion tax plans, Richard Barber, partner at prime central London estate agency W.A.Ellis makes this comment:
“Although Ed Balls has attempted to placate voters with an apparent softening of his mansion tax proposals by stating that there must be protections in place for people who do not have a high income but live in an expensive property (the asset rich, cash poor) by deferring payment until the property is sold, this does not make this tax any more palatable or fair.
“To my mind, it is clear that all he is trying to do is obfuscate the real meaning of the tax and the massive impact that it will have on London and the South East. The little publicised ATED (annual tax on enveloped dwellings), forces the owners of properties held in company names to pay an annual charge of £15,000, and this is presumably what Ed Balls intends to charge private citizens who own a house with a value between £2 million – £5 million. Whilst many may believe that if a house is of this value, its occupier could afford this tax, the current market may suggest otherwise.
“For example, for an aspirational middle-income thirty-something who purchased a family home for £900,000 eight years ago in an ordinary Fulham or Wandsworth street of terraced houses, that house may well now have a price tag in excess of £2 million. However, the mortgage interest is likely to spiral upwards in the next year as Mark Carney has regularly hinted. Meanwhile, income has quite likely remained relatively stagnant and yet if mansion tax is introduced as above, the owner will have to pay an extra £1,250 per month. Even if deferring the payment is an option, the annual charge will rack up against the eventual realisation price of the property.
“One may say that this is a reasonable tax and that the increase in value over the last eight years is unjustified, and that the owners of these properties should indeed pay the Government what amounts to a claw-back on inflation. However, I would argue that it is the Government’s lack of building of affordable housing over the last 30 years that has helped fuel excessive property inflation. A house is also, in many cases, people’s most obvious asset, however, there is no such tax on share portfolios, art collections or vintage cars, all of which have also enjoyed strong soaring inflation.
“We are also regularly told that foreign investment is depriving London owner occupiers of the ability to get on to the property ladder, however, this so called mansion tax is likely to drive the investor to purchase multiple properties with a price tag safely below £2 million, therefore increasing the pressure on the market below that level in London and the South East, to the detriment of indigenous owner occupiers. The impact that this proposed tax will have on London and the South East is huge, and the ripples are already being felt within our market. It is time that Labour were open about their intentions so that the electorate can see that ‘the leopard does not change its spots’ and a future Labour government will undoubtedly aim to tax the wealth producers of this country disproportionately whilst simultaneously deterring foreign investment.”
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