New ideas for ‘mansion tax’
We’re in the middle of the party conference season and the Liberal Democrats’ proposed ‘mansion tax’ has re-emerged. So what is it and who will it affect?
The mansion tax has been under discussion since Vince Cable first suggested it in 2009. Originally, the tax was proposed as an annual charge on properties valued at more than £1m. The tax rate would be 0.5% on the excess value above £1m which would have affected approximately 250,000 properties. The tax was payable by the owner of the property, rather than any tenant. So someone owning a home valued at £1.5m would have faced an annual tax bill of £2,500.
In late 2009, the Lib Dems proposed a doubling of the threshold to £2m and an increase in the tax rate to 1%. They said this would raise more tax but would only affect 70-80,000 properties. A house valued at £2.5m would have triggered an annual tax liability of £5,000.
Little was then heard about the mansion tax until a new version appeared recently. Currently, everyone is exempt from capital gains tax on their main home. However, the latest version of the mansion tax moves away from an annual charge to a transactional one, whereby sales of main residences valued at more than £1m would become subject to tax. Again, this tax would be borne by the owner.
Interestingly, this latest proposal has coincided with the publication of a report from the Institute for Fiscal Studies (the Mirrlees Review) – the “deepest and most far reaching analysis of the UK tax system in more than 30 years”. The report stresses the increased importance of an efficient structure of taxes in tougher financial times, seeking to replace certain distorting transactional taxes with taxes on income and capital benefits.
Among its conclusions, the Mirrlees Review proposes replacing council tax, business rates and stamp duty land tax with an annual tax based on a property’s value or, for businesses, the land value.
The new tax would be assessed on the occupier rather than the owner, because the occupier benefits from the use of the property or land. Whilst the Review describes council tax as a ‘mess’ based on valuations which are now more than 20 years old, it is more scathing about stamp duty land tax. It calls it ‘absurd’, resents its ‘perverse slab rate structure’ and the deterrent effect it has on property transfers, by discouraging people from moving home and businesses from moving premises.
Finally, the Review also proposes eliminating the capital gains tax uplift on death. It states that there is no case for this benefit, even though assets may then be subject to double taxation from capital gains tax and inheritance tax.
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