Balls blasted over "mansion tax" by property experts

Ed Balls says Labour will impose a permanent “wealth tax” on high value homes. What do the property experts think?

Ed Balls declared on Thursday that, if he became chancellor, he would bring in a tax on high-value properties.

The idea of a “mansion tax” was originally suggested by business secretary Vince Cable back in 2009, to widespread ridicule. Cable has tried to defend his pet project, but he has had to put it on the backburner now he’s in government.

Due to this, LibDems have railed against Balls’ suggestion as an example of “mischief making”. However, he has praised Cable’s “serious” idea, saying that “the likes of a mansion tax need to be on the table to be looked at”.

But how would a mansion tax hit Londoners?

Balls would be looking at a model where homes worth £2 million or more would be hit. We decided to save the shadow chancellor some time by seeing the views of those best placed to judge the merits of a “mansion tax” – property experts.

Grainne Gilmore, head of UK residential research at Knight Frank, argues that the idea would be “an effective double tax whammy for recent buyers”

“In March the Government raised the stamp duty charge on those purchasing homes worth £2 million or more from 5% to 7%. The duty had already been raised from 4% to 5% in 2011.  The cost of stamp duty when purchasing a £3 million home has nearly doubled to £210,000 over the last two years,” she added.

“Savills warns a mansion tax could be ‘very damaging’ for the London property market”

Meanwhile, Lucian Cook from Savills research warns that a mansion tax could be “very damaging” for the London property market, “given the uncertainty created by recent changes to stamp duty and associated taxes”.

Balls may be foiled in his plans for a mansion tax by the sheer task of implementing it. Chris Groves, partner at Withers law firm, points out that a “wide scale revaluation of all properties” would be needed.

“Even if the measure were implemented, the earliest it could apply would be April 2013”, he adds, “that is without valuations being done, which couldn’t be started until it was law and could take at least two years to complete, so realistically it would be 2015 before it would raise revenue. That would mean that it would not allow for a current tax cut and in 2015 there will be a General Election.”

Yet according to some experts, there is little point worrying about a mansion tax. Patrick Bullick, London chair of the National Association of Estate Agents and himself MD of Stanley Chelsea, says that Cable’s plan has already been made real.  

“George Osborne has already announced an ‘Annual Charge’, effectively a ‘Mansion Tax’, for Non-Resident Companies or Trusts which is due to come in to effect from 1st April 2013, this will be on Residential Property assets worth over £2m,” he says.

Meanwhile, Richard Barber, residential sales partner at W.A. Ellis, declares that the mansion tax “will come into effect. It’s only a question of ‘when’, and those who aren’t prepared for it are most at risk”.

“This proposition is nothing short of foolish”

And who could be worst hit? Philip Selway, managing partner of The Buying Solution, provides a sober perspective: “It will certainly make the market and negotiations around £2m, as proposed, interesting with pricing perhaps just below the figure rather than above and buyers desperate not to be caught up in competitive bidding.     

“When it comes to the very wealthy”, he adds “I think it unlikely in any event that they will be deterred from buying as a result of another layer of tax”

London could lose its status as an international “safe haven”, according to Hudsons Property MD Jonathan Hudson.  “Whilst exchange rates remain high against the pound, the mansion tax may stop some of the much needed international investment needed to keep our economy ticking over” he warns.  His conclusion is simple – “this would take too many man hours to set up and control as values go up and down, so I think the best solution is to drop the idea altogether.”

Ed Tryon, director of high-end search agent Lichfields, goes even further in warning that the tax could “sabotage” London markets.

“The international appeal of prime London property is one of the glimmers of hope in our economy and it would not be sensible to sabotage this advantage” he advises, “Prime London property is currently viewed as a stable and reliable asset class which outperforms almost every other. Introducing a mansion tax will have a negative effect on how ultra-high net worth overseas buyers perceive London’s property market – making it a less attractive place for them to invest”.

Last and certainly not least, Banda Property MD Edo Mapelli Mozzi doesn’t pull his punches on the “devastating” impact of a mansion tax.

“A ‘mansion tax’ for those who own properties of a certain value, is incredibly short-sighted and could cause long term damage to the UK economy. During such a time of austerity and economic stagnation, such a move will discourage growth and stifle innovation.

“The misconception that those who live in expensive properties – particularly in London – have more disposable income is a fallacy. Most of those who own these properties have worked ext
remely hard to be able to afford a family home in the city and at the moment will be struggling in an expensive city where salaries are not rising in line with inflation and property taxes are proportionately higher in terms of GDP than any other country in the OECD.”

“Such a tax could have a devastating impact on the UK economy.  This proposition is nothing short of foolish. At this time, we need to be encouraging people – including foreigners – to purchase property in London and invest their money in our economy. “

“Alienating those that already live in London, and discouraging those who are not from moving here will inevitably create more hardship, unfairness and economic disruption. The ultimate response, particularly if the test for the new tax is residence-based would be to up sticks and move, driving money out of the country and not in. “

So there you go Mr Balls. The experts have spoken. How do you like the feedback?