As the run-up to next year’s General Election gains pace, one of the most controversial of policies is the proposed mansion tax, which could see homeowners whose properties are worth more than £2 million paying extra annual charges.
Both Labour and the Liberal Democrats have stated that they would introduce the new policy if they were to come to power next May.
Pressure from back benchers has led, however, to Nick Clegg backing down, suggesting that he would implement a wider range of council tax bands instead if he were to secure the top job of PM.
Those of us for whom a £2 million home is a mere pipe dream might wonder what all the fuss is about – surely people with that kind of money can afford a few extra pounds (likely around 1% of the property value per year). But the problem many party members have with the proposed tax surrounds the difficulty of enforcing it fairly. One example given by Letting Agent Today is of a hypothetical couple in their 60s who have lived in London for 30 years, and whose home has soared in value in that time. The property magazine points out that in such examples, the people in question might not have a large disposable income, yet they would still be expected to pay the same penalties as celebrity millionaires if the tax was put in place.
Indeed, despite the name “mansion tax”, at least 10% of London properties that fall into the £2 million+ category are one- or two-bedroom flats; hardly the luxury, sprawling estates the name conjures. Should people really be penalised further for owning these modest-sized homes?
Countering some of the worries, Ed Miliband has stated that his version of the policy would ensure that the threshold for the mansion tax would rise along with property prices, so that people would not face higher taxes just because their properties had gained value. But this does not seem to address the question of what would happen to people with properties whose value has already risen substantially since purchase.
Around 88% of properties worth more than £2 million are in London and the South East, but Greater Manchester is another “mansion” hotspot, meaning that the tax could have an effect locally as well as nationally.
Another argument suggests that council tax needs a complete overhaul as the band system is based on valuations that were made in 1991, which are hardly representative of the UK’s geography today.
Under a Labour Government, Miliband hopes that the tax would help raise £1.2 billion a year for the public purse.
In contrast to Labour and the Lib Dems, the Conservatives have ruled out the introduction of such a tax, saying that people should not be punished for working hard and earning good money.
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