Chancellor George Osborne will risk distorting the property market if he introduces a mansion tax in the Budget, according to a London property expert.
A tax on properties worth more than £2 million could be announced on Wednesday, it has been reported, a measure which deputy prime minister Nick Clegg and other Liberal Democrat members of the coalition government are said to be keen on.
Approximately 45,000 homes in England and Wales are believed to be worth at least £2m, with four fifths of these located within the capital.
National Association of Estate Agents (NAEA) London representative Patrick Bullick believes a mansion tax could distort the capital’s property market if it is brought in as a ‘slab tax’, which would be payable on the whole purchase price of the property and not just the amount over the threshold.
Bullick said: “Because the potential tax on £2m properties will be done on a cliff-edge approach you will find distortions in the market. People will be trying to avoid their property being valued at £2m so they don’t encounter the tax.
“It will create an artificial barrier where people will try to keep properties below that level, but the question is who will be valuing it? Will it be the value of the property when it was last sold? There are huge potential issues if it is got wrong and the arguments behind that.”
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Bullick also expressed concerns that once a mansion tax is introduced it could be increased over the years. He said: “Once the principal of something is established then they will ratchet it up to the amount they want as they go on.”
Despite the increased cost of owning a highly valuable property that a mansion tax would bring, Bullick is reasonably confident people will still want to invest in London properties.
“I don’t know how much it will affect the wealthy and whether they will buy, but I suspect they will want to buy in London. But it is potentially a bureaucratic nightmare and will affect certain people like older ladies with no income who happen to have larger properties,” he said.
The NAEA has urged the government to concentrate on building more homes and overhauling the stamp duty system, rather than looking to add to the “heavy tax burden” felt by home-owners.