Thirteen years since the Liberal Democrats first proposed a Mansion Tax on properties over £2m, the Treasury is reportedly considering the same plan.
Even the proposed threshold is identical, which tells you everything you need to know about house price inflation since 2012. Average values in prime central London have fallen by 8% over the period.
Ironically, it was the original Mansion Tax plan that helped deflate the market. It was never introduced but prompted Tory Chancellor George Osborne to increase stamp duty for high-value properties in December 2014, and demand in prime markets has never fully recovered.
It’s a reminder of how property taxes often come with unintended consequences. If you tax so-called mansions, you will end up with fewer of them.
Just over 150,000 properties in England and Wales would fall into the bracket today, according to Knight Frank calculations. The Mansion Tax rumour is the latest in a series of ideas circulating ahead of the Budget on November 26 as the Chancellor attempts to plug a £30 billion fiscal hole.
The list of areas that would be most impacted is predictable and would inevitably lead to accusations of the levy being a tax on London, as the table shows.
| Local Authority | % of properties above £2m |
| Kensington and Chelsea | 18.5% |
| Westminster | 12.3% |
| Elmbridge | 7.5% |
| Richmond upon Thames | 7.2% |
| Camden | 6.9% |
| Hammersmith and Fulham | 4.5% |
| Merton | 3.6% |
| Waverley | 3.3% |
| Wandsworth | 2.9% |
| Sevenoaks | 2.9% |
| Windsor and Maidenhead | 2.8% |
| City of London | 2.5% |
| Barnet | 2.4% |
| Three Rivers | 2.3% |
| Guildford | 2.3% |
| St Albans | 2.2% |
| Islington | 2.2% |
| Cotswold | 2.0% |
| Haringey | 2.0% |
| Runnymede | 2.0% |
Source: Land Registry and Knight Frank Research
Based on the percentage of affected properties in K&C and Westminster, the equivalent Mansion Tax threshold in the West Midlands would be £408,000. In north-east England, the figure would be £288,000, in Wales it would be £367,000 and for London as a whole, it would be £829,000.
It suggests the term ‘mansion’ is misleading, not that the government won’t be quietly pleased with the recent headlines. They can only help pacify its backbenchers and stem rising support for the Green Party.
Arguments made in 2012 that some long-term homeowners would be unable to pay the tax remain valid. It would catch out pensioners whose house has appreciated in value while their income has gone in the opposite direction.
This, in turn, could lead to more downsizing. It may result in a more efficient use of the country’s housing stock, but assumes owners are ready or willing to leave a neighbourhood they may have lived in for decades.
One positive interpretation of the latest speculation is that the Treasury may be moving away from the idea of capital gains tax (CGT) on higher-value main homes. During the back and forth that is currently taking place between the Office for Budget Responsibility and Number 11, someone must have pointed out that the CGT plan could raise far less than expected.
Targeting a transaction-based tax at the one section of the property market who are most able to sit on their hands is a high-risk strategy.
Ultimately, any decision will depend on how backed into a financial corner Rachel Reeves is and how prepared she is to break manifesto commitments not to raise income tax, VAT or National Insurance – as we have discussed on previous Housing Unpacked podcasts here and here.
Tom Bill is head of residential research at Knight Frank
