150,000 properties would fall into reported Mansion Tax bracket

Just over 150,000 properties in England and Wales would fall into the reported Mansion Tax bracket, according to Knight Frank calculations.

Thirteen years since the Liberal Democrats first proposed a Mansion Tax on properties over £2 million, the Treasury is reportedly considering the same plan.

The Mansion Tax rumour is the latest in a series of ideas circulating ahead of the Budget on 26th November as the Chancellor attempts to plug a £30 billion fiscal hole.

Knight Frank says 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".

Based on the percentage of affected properties in Kensington & Chelsea 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.

Accelerate downsizing

Arguments made in 2012 that some long-term homeowners would be unable to pay the tax remain valid. Knight Frank says 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 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, which some industry experts have said would raise far less than expected.

Prices slide

Due in part to the Budget speculation, average prices in prime central London (PCL) fell 4% in the year to October, which was the steepest decline since February 2021, Knight Frank data shows.
 
Values were last higher in October 2011, meaning there would be no capital gains to tax on properties bought since then anyway.

Property taxes have been the subject of intense speculation ahead of this month’s Budget as Chancellor Rachel Reeves attempts to plug a £30 billion back hole to meet her own fiscal rules.

One proposal floated in the media is to charge National Insurance on rental income. The idea aligns with suggestions made by Torsten Bell when he was head of the Resolution think tank. He is now an MP and a key architect of the Budget.

The risk for the government is that such a move proves to be inflationary, as more landlords decide to sell or pass on the cost to tenants.

David Mumby, head of prime central London lettings at Knight Frank, commented: “Speculation about a host of possible tax rises in the Budget is drowning out any noise around the Renter’s Rights Act for landlords. For tenants, the gloomier things feel, the more they prioritise liquidity and cash in the bank and that is supporting strong demand in the lettings market.”