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Lucian Cook MA (Cantab),
MRICS Director
Residential Research

Savills

TAXING MANSIONS:
The Taxation of High Value Residential Property

The case for a “Mansion Tax” is far weaker than it appears at first sight, finds Lucian Cook, director of Savills research, in Taxing Mansions: the taxation of high value residential property , published by the Centre for Policy Studies on Sunday 4 March. Such a tax would be complex and inefficient, raising little revenue at great potential cost, and could hurt the asset rich, cash poor long term owners of high value property, the paper concludes.

In particular, top end property owners already make a disproportionately high contribution to tax revenues:

  • the UK already has by far the highest property tax take of any OECD country (property taxes contribute 4.2% of GDP compared to the OECD average of 1.8%)
  • the highest 1.6% of residential property sales yielded £1.2 billion
  • in 2010, the equivalent of 26% of all stamp duty receipts
  • last year’s introduction of the 5% stamp duty band for properties over £2 million will contribute a further £290 million a year
  • the top 0.7% of housing stock held at death contributes 36% of inheritance tax receipts from residential property
  • the non dom levy, which will rise from £30,000 to £50,000 a year, already collects revenue from owners of high value property domiciled overseas

In contrast, a Mansion Tax set at 1% of the value over £2 million would yield just £1 billion (or 0.2% of total tax revenues) at most – but bring with it significant problems:

  • it would unfairly target the income poor, equity rich (31% of properties in London worth over £2 million have been in the same ownership for over 10 years, 15% over 20 years. Price growth has been +89% in the past 10 years and 426% in the past 20 years)
  • it would be both difficult and expensive to value all relevant properties (there is little comparable transactional evidence; valuations would also be vulnerable to extensive legal dispute)
  • it would undermine London’s position as one of the world’s leading business locations. If only a handful of the new class of international wealthy were no longer to come to Britain, the resulting loss of tax revenue would be far greater than that raised by this tax.

Analysis by Savills also finds that estimates of the level of stamp duty avoidance - primarily through off shore vehicles - are overstated. Detailed analysis of transactional activity suggests that this occurs in only about 10% of prime central London and just 4% in the rest of the UK. Tightening this loophole would only generate around £150 million.

Lucian Cook comments:

"The common perception is that owners of high value homes pay a disproportionately low level of taxes but this analysis really explodes this myth. A new annual levy such as proposed, with a fixed threshold, would really distort market dynamics and would penalise cash poor long term owners of properties that have passed the threshold by dint of house price inflation."

Tim Knox, Director of the Centre for Policy Studies, comments:

“A Mansion Tax would strike at the heart of aspiration and of property ownership. And be sure that it will, over time, spread to include more people as politicians seek new funds for their pet projects. Yes, there is a pressing need for reform to our tax system based around Adam Smith’s principles of fairness, simplicity, certainty and efficiency. Closing the opportunities for stamp duty avoidance would be a sensible measure. But for economic recovery, the UK does not need a new complex tax targeted at the aspirational and successful. It needs lower, simpler taxes aimed at encouraging, not penalising, wealth.”

Lucian Cook is available for comment and interview. He can be reached on 020 7016 3837/ 07967 555 418 or at lcook@savills.com


NOTES

  1. Taxing Mansions: the taxation of high value residential property by Lucian Cook is published by the Centre for Policy Studies on Sunday 4 March.
  1. Lucian Cook MA (Cantab) MRICS is Director in the Research Department at Savills PLC. One of the most frequently quoted commentators on the residential property market, he has over 18 years experience in property industry.

Article dated: March 2012