A DEFINITIVE GUIDE TO MANSION TAX

I have ‘seen out’ four recessions and I have been ‘treading the boards’ now in residential estate agency for over 40 years and I can see ‘the writing on the wall’.  Mansion Tax is a punitive tax on aspiration; it will not raise any money at all but will certainly cause mayhem in property values, principally in London, which will put the fledgling UK recovery at risk. Here are a few thoughts:

Q: How easily will Mansion Tax be implemented?
A: The Courts/Tribunals will be besieged with claims and counter claims disputing values, particularly at around £2million, and nothing will be paid until these are resolved and that could take years.

Q: What will happen to property prices when they impose this tax?
A: I believe they will drop between 20-25% and this will start many months before the election, due to the uncertainty, where people assume the worst.  There will be a massive stock overhang of unsold properties and the few buyers willing to commit themselves will be ‘bottom feeders’ submitting low bids on many properties at one time in the hope that the lowest one will succeed.

Q: Will this affect the other price categories?
A: The higher end of the property market will take the first hit as the signal goes out to international purchasers that the ‘can do’ environment has changed. Canny buyers will see prices falling and will wait until they settle before committing themselves.  There will be massive illiquidity. Tumbling values will cascade down so that there will be a correction in values, in all parts of the market, that will trigger consternation amongst lenders when loan to value ratios crash and many turn into negative equity.

Q: What happens to properties around the £2million price mark?
A: Anyone with a property near this threshold will not spend any money refurbishing since this could increase the value into Mansion Tax territory.  Even owners of properties higher up the price scale will not want to spend money for fear that this will increase their Mansion Tax liability.  The construction industry and building trades will go into freefall and, as the property market plummets, there will be a very tangible effect on the sale of white/brown goods. Retail spending will fall, which is closely linked to the buoyancy of the property sector. Lest we forget, we are in a consumer led recovery and the well being of the consumers is closely linked to a buoyant property market.

Q: What will homeowners do to avoid this draconian tax?
A: Anything within their power. They will try to split the Title so as to create, for instance, three separate properties below the tax threshold.  They could claim one or more of the rooms is used for business/conference rooms thereby reducing the value.  There will be a new crop of B&Bs in Central London never previously seen before.  Bear in mind that the taxes are so huge and unfair that they are well worth spending resources trying to avoid.

Q: Will they raise any money?
A: At one point the Labour/Lib Dems said that the tax will raise £1.7billion and this has been revised to £1.2billion but this is pure guesswork and it could be that is raises far less than this, if anything at all. The Lib Dems/Labour Parties have already talked about lowering the threshold to £1million and then it really does become, what it was always designed to be, a ‘Home Tax’. The fall in Stamp Duty as a result of the malaise in the property market, with far fewer transactions, will extinguish any monies earned from Mansion Tax.

Q: So, if Mansion Tax will not effectively raise any money at all for The Treasury, why impose it?
A: It is a wonderfully crafted, socialistically inspired sound bite that is there to trigger class war – the most emotive of political devices. It doesn’t need to raise any money to be effective at garnering votes for the Labour/Lib Dem Parties.  Raising Higher Rate Income Tax to 50% has been shown, by The Treasury themselves, to generate less revenue but that doesn’t stop Mr. Balls advocating the same.  If it is popular amongst the electorate as a whole, the cynical socialists will propagate it.

Q: Will Mansion Tax raise any money for the NHS?
A: The NHS costs The Treasury £108billion and due to the governments pledges for frontline medicine spending increases by more than 4% above inflation (in real terms), which is greater than ever before, and even if Mansion Tax raises a few hundred million, it will be de minimis in terms of the NHS budget.  The reason why the two are linked is to increase the emotive response. The propagators of this know that it is complete nonsense, but that doesn’t stop them.

Q: What will happen to the properties belonging to the Queen and The Crown Estate?
A: The Queen is likely to have to pay at least £1million per annum in Mansion Tax unless they can be avoided by way of a Real Estate Investment Trust.

Q: What will happen to cash poor widows?
A: Apparently, the tax will be ‘rolled up’ and will become payable on the sale of the property or on death.  This will add to the illiquid market and poor ‘granny’, who thought her only liability was death duties, will be told that any monies she wanted to bequeath to her family for them to make a start on the property ladder, will be extinguished by the aggregate of Mansion Tax, plus interest.

Conclusion: The Labour/Lib Dems’ Mansion Tax could end up as a labyrinth of a thousand pages of complicated legislative maze that will consume a large amount of resources better spent elsewhere.  It may not raise a farthing for the government as a result of the mass avoidance and creative financial instruments designed for their purpose.  The Tax would be conspicuously harmful to the Property Industry, to construction, to jobs and to the economic growth of this country.  More ordinary people will be harmed than rich people and it will go down as another one of the socialist’s foolish escapades such as the lamentable ‘Home Pack’ fiasco.

Sadly, they will use this as a device to get into power and at that point it will have done its work.