Mansion Tax was first suggested by the Lib Dem party in 2010 as a levy of 1% of the property’s value above £2 million in the UK.
It has more recently been advocated by the Labour party as a scheme that will bring the British government £1.2 billion a year in revenues.
If and when the Mansion Tax is levied, it will be charged on the excess of the value of homes over £2 million. It will be a progressive tax where those who have the priciest homes are paying proportionately more than those just over the £2 million threshold. The threshold will also rise in accordance with rising house prices so that inflation is taken into account.
There are also proposals for overseas owners of second homes in the UK to pay more than home owners living in their only UK home.
If this tax is levied, it will be a double whammy for the rich as the recently modified SDLT hits the top end of the property market hard with a 12% tax rate.
However, there is going to be a measure of protection for those home owners who are potentially sitting on very expensive properties but don’t necessarily have a huge amount of cash. They will be able to defer the payment of Mansion Tax till after their death where it will come out of their estate or alternatively, they will also have the option to defer it till their property changes ownership.
The proposed Mansion Tax is highly controversial, and one that is seen by many as being punishing and detrimental to UK’s investor friendly reputation.
With the recently reformed SDLT tax rates already rendering a blow to the high end property market, the Mansion Tax, if introduced, is set to magnify that impact. Whether this means that there will be a cooling off at the top end of the market, remains to be seen.