While Labour and the Liberal Democrats to-and-fro over the idea of a ‘mansion tax’ the impact of previous tax changes is still being felt, and some say they have already harmed the property market.
New rules introduced last March saw an increase in the Stamp Duty payable on properties worth over £2m to 7%. A new category for ‘non-natural’ owners also launched at the same time with an eye watering rate of 15%.
This classification was intended to prevent individuals channelling their wealth through firms located overseas and buying properties on their behalf.
A year on and the taxes have been hard felt by some. One person who has seen the changes first-hand is Trevor Abrahmsohn, estate agent at London-based Glentree. He agrees that the rules have had their intended impact but warns that the government changes have scared foreign investors from the country.
“These changes were clumsy and driven by the Liberal Democrats and their desires for a mansion tax,” he told Mortgage Solutions.
“The Lib Dems said that they made the changes so people couldn’t bypass the system, but we found that 99% of purchases, whether they were personal or corporate, were paying Stamp Duty in full anyway.
“There was no avoidance or evasion.”
Further taxes on non-natural owners will come into force on April 1, with an annual tax of £15,000 on properties worth between £2-5m, £35,000 on properties worth £5-10m, £70,000 on those worth £10-20m and an annual rate of £140,000 on properties worth over £20m.
Yet the extent of the plan was not clarified by the government until December. This has caused uncertainty and a drop in transactions according to Grainne Gilmore, head of UK residential research at Knight Frank.
“There was no clarification until December over these rules and we did see a fall in transactions,” she told Mortgage Solutions.
“Everyone was holding off and waiting to see what the impact of the new rules would be. Those who bought through an offshore company were affected and there was doubt in the wider market.”
Gilmore adds that the tax changes have been brought in with the intention of shoring up tax loopholes rather than raising more funds.
“From what I understand the government aren’t expecting to raise too much money from this, it is simply to stop people buying in company structures.
“But there have been no indications that this has affected prices as prime London property remains strong.”
Abrahmsohn agrees that the new levies will not result in a higher tax intake and argues that the downsides outweigh the good by making house purchase more difficult for legitimate buyers.
“Very few companies transferred properties by selling shares as the purchaser had to take on a huge amount of risk with regard to contingent liabilities for the sake of saving a small amount of tax.
“There were very few transactions so the tax lost was meaningless.”
He adds that transactions at his business are down because of the changes and that buyers would now simply move to other countries.
“Now, with these new tax measures in place, the fall in the number of transactions has actually reduced the tax take.
“Our levels are 50% down because what foreigners were actually buying through firms for was the anonymity.”
Some might say this is an issue that affects the Cheshire mansion and Kensington townhouse owning minority. While this is true, any uncertainty in the market can only be a bad thing at this precarious time.
A government of any stripes taking action to reduce tax avoidance has to be seen as a positive. While some may disagree on the rules implemented, certainly in the short-term house prices in London have shown no signs of stopping.