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Mr Osborne – a word of advice…

by: Mark Harris
  • 13/03/2012
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Mr Osborne – a word of advice…
It's one of the peculiarities of Cannes that you bump into more people from London than you do in London itself.

MIPIM, the international real estate fair, was buzzing last week as the great and good from the London commercial property sector descended on the French Riviera for four days of networking, deal making and everything that goes with it.

It was survival of the fittest, but there was plenty of business to be done, which augurs well for brokers working in this specialist sector.

Yet, it’s not just the commercial sector which is thriving.

A recent property auction at the Royal Garden Hotel in Kensington High Street was buzzing. The room was packed, reminiscent of a time when developers and landlords viewed auctions as a surefire way of making money, while first-time buyers saw an opportunity to get on the housing ladder at a knockdown price.

With nearly 200 lots, the vast majority of which sold, it’s a clear indication that there are plenty of people who still believe there is profit to be made.

The burgeoning bridging finance sector is funding a good number of these purchases, with developers bringing in a team of builders, electricians and plumbers to do the refurbishment to a tight deadline before refinancing. Others are buying with hard-saved cash.

With the Budget on the horizon, the proposed mansion tax has got many people jittery. Savills’ view is that it would be ‘complex and inefficient’, undermining London’s position as a leading business location.

Charging 1% of value of properties over £2m would yield £1bn, which is a drop in the ocean when you consider how much money the country owes.

Indeed, it would bring in 0.2% of total tax revenues at most, while unfairly targeting the income poor, equity rich.

It would, of course, disproportionately affect London where the vast majority of these expensive properties are located.

It would be difficult and expensive to value all relevant properties, although surveyors may want to give it a go, particularly as there is little comparable transactional evidence. It would also be a legal nightmare, with valuations vulnerable to extensive disputes in the courts.

Another area where the government will potentially try to raise much-needed money is by targeting Stamp Duty tax dodgers who use offshore vehicles.

But again, the Savills research suggests that Stamp Duty avoidance is overstated, occurring in just 10% of prime central London transactions and just 4% in the rest of the UK.

What is the potential value of tightening this tax loophole? Around £150m; a relative drop in the ocean.

However, it’s the mansion tax, which is the real problem.

Let’s not forget that the UK already has the highest property tax take of any OECD country at 4.2% of GDP, compared to the OECD average of 1.8%. If this tax persuades the international wealthy that London is not an attractive place to live, it will mean a loss in tax revenue far greater than that raised.

My advice to George Osborne, should he wish to take it? Shelve the mansion tax, not just for this year, but preferably forever.

Mark Harris is chief executive of SPF Private Clients

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