So there we have it. There isn’t going to be a mansion tax. And there isn’t going to be a rise in top rate council tax as a proxy for a mansion tax.
But there is going to be a sudden rise in top rate stamp duty for houses that cost over £2m. That’s going to make transactions look really expensive. A mansion tax would have been charged only on the part of the value of the house over £2m. So the owner of a £2.5m house would be hit up for whatever the tax would have been (say 1%) on £500,000 not on £2,500,000. So a bill of £5,000.
But someone buying a £2.5m house tomorrow – and not finding an avoidance route – is going to pay a total and immediate bill of £175,000. That’s 35 years’ worth of mansion tax.
Part of me really minds this on the basis that it is deeply irritating and market distorting that stamp duty is not a stepped tax (everyone tries to keep prices down around the margins).
I also know – as we all do – that fiscal drag will mean that the rise in stamp duty will hit many more ordinary houses than mansions in a decade or two. Prices will rise in nominal terms, but the tax bands never will.
Finally, of course, I just hate all rises in all taxes. However, I am pleased it has offered a political route to a small cut in the UK’s top rate of income tax (which will now be 47% rather than 52% from next April) – OCED research shows that taxes on income create the most excess burden for economies, so reducing them is pretty much always good.
I’m also pleased that it comes with a promise to increase the taxes paid by non-residents buying property in the UK. Until now, they have been able to avoid stamp duty on their transactions (via offshore companies) and they have not been liable for any capital gains tax when they sell. That has meant that their price of entry to the UK property market (and all the political and legal stability it brings with it) has been no more than the cost of a year’s council tax (minus second home discount, I dare say). That’s not much, given what the UK offers them.
Now, however, it looks like they will have to pay the 7% – at least. George Osborne is finally closing the loophole that has allowed them to avoid it by saying that any houses bought by ‘non-natural’ persons such as companies will have to pay stamp duty at 15%. The Treasury is also considering bringing in an annual charge on property transactions done via companies from next year.
Finally the government is working on yet another overdue move – bringing in capital gains tax on the disposal of residential property by non-residents by next year. Will all this deter overseas buyers from picking up expensive houses? I don’t think so. The cheap pound means that if you are buying in anything from euros to Singaporean dollars, UK houses still represent real value.
And it is also worth remembering when it comes to the domestic market that in the end it won’t be the buyers who pay the tax – it will be the sellers, for the simple reason that the 7% tax will force their selling prices down.
It also isn’t going to prevent people buying £2m-plus houses in London to live in and get to work from: they live in London because that’s where the networks are that make them the money that allows them to buy expensive houses in the first place – that won’t change.