How would a mansion tax work exactly?

How would a mansion tax work exactly?
Posted by James Hood

Both Labour and the Liberal Democrats political parties have said they would introduce a so-called ‘Mansion Tax’ if they were in power. It would include high value properties across the UK, including homes such as five bedroom houses, luxury London penthouses and lofts as well as smaller flats in affluent areas. But what is a mansion tax, how will it be enforced and who will it affect?

Although nothing concrete has been decided, a mansion tax has been proposed on properties worth more than £2 million in the UK. Critics of the scheme have said that it is difficult to define a property as a ‘mansion’ as there are variations of £2 million homes across the country. For example, a two-bedroom flat in London’s Mayfair could cost the same as a six-bedroom home in the Derbyshire countryside.

The proposals
Labour has suggested an annual charge for properties worth more than £2 million, which they expect will bring in £1.2 billion a year. They have also added that it would be a progressive charge that is proportionate to the value of the property. Homes worth many millions will pay more in tax than those that are valued just over the threshold, for example. The party has also said the threshold would also rise in accordance with house prices.

The Labour party has said there will be protection for those owners with a lot of equity but a more modest income, with an option to pay the charge from their estate when they die.

In 2010, the Liberal Democrats proposed a tax of 1% on the value of a property above £2 million – a threshold that would also rise in line with increasing house prices. As an example of this plan, a property worth £3m would face a charge of £10,000 a year. The party said the tax would raise £1.7bn a year. They re-iterated their support for such a scheme at the 2014 party conference.

The Conservatives however have ruled out a mansion tax. Speaking to the BBC in 2013, David Cameron said: "a wealth tax is not sensible for a country that wants to attract wealth creation, wants to reward saving and people who work hard and do the right thing".

Who could be affected?
Although the answer to this question cannot be definitive at this stage, it is estimated there are up to 110,000 homes with a value of £2 million or more in the UK. Whatever the correct figure is, it seems everyone agrees that around 80% of these properties are in London and the South East.

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