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Sestini & Co | on Sun, 09/28/2014 - 11:20 | In
Uncategorized There has been much talk of the possible introduction of a mansion tax over the past few years and the discussion is now live again since Ed Balls’ announcement at the Labour conference.
Many people (generally those who feel that they and their close friends/family are unlikely to be affected) think this is a great idea, another way to ensure that the people with the most money pay a bit more tax. In particular much has been made of the fact that a billionaire with a property worth £140 million still pays the same council tax as someone with a property valued at £325,000.
There has also been the usual hyperbole in certain quarters about non-residents and expats “buying up” large swathes of London without paying their dues.
We don’t yet have the detail of how labour plan to calculate the new tax, but it is possible that they will seek to enact something along similar lines to the Annual Tax on Enveloped Dwellings (ATED) which was brought in with effect from April 2013 for properties worth £2m or more in corporate ownership (or more precisely, properties owned by so-called “non-natural” persons). ATED is calculated on a sliding scale, the tax charge for 2013/14 ranging from £15,000 to £140,000 depending on the value of the property. Where ATED applies to a property, additional taxes come into play including a 15% rate of SDLT and 28% capital gains tax payable on sale.
In the context of the Mansion tax (where current discussions are about properties worth in excess of £2m) it’s worth noting that ATED is being extended, first to properties worth over £1,000,000 in 2015 and £500,000 in 2016. At the time ATED was introduced, similar comments were made about indexing the £2,000,000 threshold year on year, and focusing on non-resident billionaires buying up expensive property in London. But if all proceeds as planned, a large proportion of the properties in the South East could be caught within the next two years.
One can’t help wondering if this would be the natural progression of a mansion tax over time…
The stated rationale for bringing in the mansion tax also begs the question of why not simply update the council tax bandings to allow for a higher charge for more expensive properties? We currently have bands A to H, there is room for a few more without the need to introduce a new raft of legislation (including the inevitable exemptions and opt-outs which will prove costly for HMRC to administer and police). By mentioning an update of the bandings, I’m not suggesting a potentially expensive and complex revaluation and reclassification exercise, simply introducing another set of bands which sit above the existing ones, providing some differentiation in the amount of council tax paid by a £325,000 family house and a £10,000,000 “mansion”.
However, it’s worth looking at the amounts involved: recent research suggests there are around 108,000 properties worth £2,000,000 or more in the UK. Presumably a number of these are already within ATED and so wouldn’t suffer another, similar tax. Some will belong to people with insuffcient income to pay the tax – there will therefore be exemptions or defaults. There will be appeals based on disputes around property valuations, particularly for the third or so of these properties which have been in the same ownership for more than a decade. Is there a danger that a niche tax targeting a small number of people could divert valuable resources from other branches of HMRC? Not to mention the time and expense of dispute cases going through the courts.
So, could there be a better way to approach this? Perhaps by a comprehensive review and (dare I suggest?) simplification of our capital taxes regime in its entirety rather than bolting on an additional set of rules unconnected to our existing legislation.
Although its easy to bandy around statistics as to how many nurses/doctors/midwives additional taxes of £1bn-£2bn could potentially fund, it is easy to lose sight of the cost of introducing a new tax and new complexity, as opposed to enhancing what we already have. For an existing tax, precedents, tax returns, penalties and collection mechanisms are already in place. For a new tax, these all have to be established, enacted both in law and in practice and tested over time.
A review with a view to improving how our capital taxes work and interact with each other might not be as headline grabbing as targeting a new tax at the “very wealthy” but perhaps over the long term it could be a step towards a more streamlined, fair, efficient tax system.
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