Homes worth £540k could pay mansion tax

Homes worth £540,000 today could be liable to pay mansion tax, which has been proposed by the Liberal Democrats, if house price inflation is not accounted for.

Research published last week by estate agent Knight Frank claimed this would mean 775,500 homes would be paying the tax in 25 years, compared with around 55,000 today.

It also claims house prices over the last decade have risen by 69 per cent, so if growth carried on at this rate then homes worth £1.2m today would be paying mansion tax within 10 years, almost tripling the number of properties paying the tax to 157,300.

Knight Frank argues “cash-poor, equity-rich” homeowners who have seen their homes increase in value over the long-term but still earn low to middle incomes may be liable to pay a mansion tax with no obvious means to do so.

Knight Frank head of research Liam Bailey says: “Our calculations point to the threat of the mansion tax threshold being lowered substantially to meet the revenue targets of the political parties.

“Even if the threshold is not lowered, it seems a fair assumption – given it has remained at £2m since 2009 – that it would not be realised in line with house price inflation thereby substantially increasing the number of properties affected by the tax.”

The Liberal Democrats have proposed the introduction of a mansion tax on properties worth more than £2m. The tax would apply to the proportion of residential value over £2m, at a rate of 1 per cent annually.

The proposal is supported by Labour and both parties gave reportedly stated their objective for the tax to raise between £1.7bn and £2bn annually.

However, Knight Frank says the proposals, as they stand, would only raise around £1.3bn annually. It says in order to raise the targeted revenue the value threshold for the tax would need to be reduced from £2m to either £1.5m, to raise £1.7bn, or £1.25m, to raise £2bn.

Around 86.4 per cent of all £2m+ properties are in London and the South East, the agent says.