Labour says the tax (which they believe would raise about £1.2 billion a year) will be progressive; meaning that people with homes just over the threshold would pay about £3,000 per year (or £250 a month), while higher value homes will see a higher tax levied.
The proposed mansion tax is likely to affect many London residents who are asset rich but cash poor, as properties purchased over the last ten years have significantly increased in value over this period. While Labour is proposing that affected homes with low incomes would be able to defer the tax payments until their property is sold, implementing a tax that is based on the perceived value of a property could be short sighted. A fairer system, like basing the tax on the size or square footage of a property instead, could be a good alternative.
Another alternative currently being proposed by the Liberal Democrats is an extension to council tax. In England, there are currently eight council tax bands, based on the value of properties in 1991. These range from Band A (homes valued at up to £40,000) to Band H (over £320,000). This means that all homes worth more than £320,000 in 1991 pay the same council tax in their local authority area, regardless of what they are worth now. The property market has clearly changed considerably since 1991 and this top threshold of £320,000 is very out dated.
Across England and Wales just 0.7% of properties sold in 1995 (the closest year to 1991 where data is available) were £320,000 or more. However, now, 22% of properties nationally, and 60% of homes in London sell for more than £320,000. There is little information on how properties would be valued for both council tax purposes and mansion tax. Previous plans for council tax revaluation have been abandoned due to the complexity and cost of valuing all our homes. What level of house price growth should be applied to Band H properties to ascertain which ones would be worth more than £2 million now?
If we were to apply national house price growth rates to Band H properties, it would suggest that a £320,000 property in 1991 would now be worth £1.37 million (accounting for 44% of homes sold in Kensington and Chelsea last year). However, if a more local growth rate is applied over the same period, the results could differ dramatically. For example, in Kensington and Chelsea a £320,000 property in 1991 would now be worth more than £2.36 million (accounting for 24% of homes sold in Kensington and Chelsea last year).
Taxing high value homes was never going to be popular in London, but whether there is belief these approaches are fair, or even implementable, we are likely to find out very soon as the General Election is just around the corner.