Would the mansion tax be bad news for UK property?

Would the mansion tax be bad news for UK property?

The mansion tax is a piece of legislation that has been hanging over the UK property market for a number of years now, with the threat of those who own properties costing over two million pounds being taxed seemingly getting more and more real all the time.

However, with the general election now less than a year away, the chances of it being introduced seem more likely than ever before. The idea was first brought about by the Liberal Democrats, but since then it has been adopted by Labour, and it is widely believed that if the party comes to power next year then mansion tax will become a reality - but how would this affect the property market?

According to experts, however, its introduction would prove very detrimental to the property market in London and the south-east in particular. 

In 2013, there were ten per cent more homes sold for more than a million pounds in 2013 than when it hit its previous peak in 2007, which meant that 8,320 streets UK-wide had at least one home with a price tag of more than a million pounds - and with these rising in price far quicker than any other types of home, it would mean that more and more reach the threshold in just a few years.

With over half of these streets situated in London, it's not hard to see how a tax on this type of property could prove to be a serious problem for the market in the capital.

"A mansion tax will be a tax on London and the south-east. Policymakers may feel that moving towards a regime where levying more taxes on assets as well as income is necessary, but there needs to be more detail on how this will work, and perhaps some assessment of the unintended consequences on the Treasury’s other sources of income such as stamp duty, capital gains tax and inheritance tax,’ said Liam Bailey, global head of residential research at Knight Frank.

The worry is that over a number of years, the total volume of homes being sold at between £1 million and the £2 million threshold would fall drastically as people who are on the verge of having to pay a mansion tax avoid spending so much.

The other problem that could occur could be that there would be the chance for a fall in valuations as vendors seek to avoid a reality wherein they are not able to find a buyer for the above reasons.

It would mean that properties which really should be selling for just over £2 million end up going for less than the threshold, which would mean in turn that the market could stagnate and prices remain static for a number of years. 

Experts have called for a raising of the threshold for mansion tax at the very least. After all, the first proposal for this variant was brought about in 2009, and the property market, particularly in London, is a very different place now.