The return of the mansion tax

If you thought the Conservatives' election victory meant the death of the mansion tax, think again, says Merryn Somerset Webb.

With Labour out of the picture for four years, you might think that you are safe from the mansion tax. Think again. The Conservative Party ruled out raising VAT, national insurance and income tax just before the election. But, if they want to keep looking serious about dealing with the UK's debt, they're going to be looking for another way to raise some extra cash. And the obvious place to look? Property and high-end property in particular.

So what could happen? Baker Tilly has looked at some of the options. The first and most obvious is capital gains tax (CGT). The principal private residence relief (PPR) on CGT remains unlimited.It doesn't matter how big your house,or how much you make on it inhow short a time, the gains are tax free. We've been arguing for some years now for stamp duty to be abolished in favour of a low, inflation-linked CGT charge on all primary property profits.

But a more politically acceptable way to step towards this change might be to put a limit on either the value of a house eligible for PPR, or on the profits eligible for the relief. That would bring high-end houses into the tax bracket in just the same way as a mansion tax would have.

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Another possibility would be to increase the CGT charge foreigners pay on UK property perhaps aligning it with income tax. Alternatively, there could be shifts in stamp duty particular at the high end (as in Scotland), or for second homes even.

Next there is council tax, the much-unreviewed annual tax paid on all houses. Here, as Baker Tilly points out, the rates are not only low, but hugely varied across the UK: the highest band (H) captures houses valued at more than £230,000 in England, £212,000 in Scotland and £424,000 in Wales. None of the change since has been captured in the numbers: a property valued at £320,000 in 1991 would now be worth almost £2m in London, whereas one elsewhere in the UK would come in at a maximum of £1.2m.

The fact that today both houses are banded the same suggests scope for revaluations and rate rises we'd expect both at some point, plus the abolition of council tax discounts for second homes.

There is one final possibility for property owners to worry about: the abolition of tax relief on interest payments for buy-to-let investors. We have long discussed the rights and wrongs of this, but the argument is moving into the mainstream: The Economist has called for subsidies that "make borrowing irresistible" to be phased out. Any government that wanted to shift homeownershipfrom the older and better off to the younger and less well-off will be thinking about that.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.