To the relief of many taxpayers, the outcome of the December election extinguished the fears of significant increases in levels of taxation originally contained in Labour’s election manifesto. The size of the Conservative majority surprised even some party loyalists and many might have expected taxes to remain relatively stable as a result. But it was clear from the profusion of spending promises made in the Conservative Party’s election manifesto that government revenues would have to increase one way or another.
With the Conservatives having promised to freeze rates of income tax, national insurance and VAT, the Treasury has been left with little room to manoeuvre. It appears now, judging by a recent report in the Sunday Telegraph, that the plan may be to raise revenue through the taxation of real estate.
According to the report, a so-called ‘mansion tax’ directed at residential real estate has been mooted more than once in Treasury discussions and in government more generally. But, as ever, the details of how such a tax would be levied remain unclear. One issue that the government must deal with is how people who have significant wealth tied up in real estate but limited liquidity would be able to afford such a tax. Such is the case for many of the older generation, who will likely have seen significant house price appreciation in their lifetimes without any relative increase in their income or the value of their other assets.
It goes without saying that a tax on residential real estate would not affect all regions of the UK equally. It has been pointed out by some commentators that the proposed tax might be motivated as much by a desire to shore up support among newly won voters in formerly Labour areas as by a need to fund the government’s costly spending commitments.
For non-UK buyers, all this comes in the aftermath of the Conservative’s promise to levy a stamp duty land tax surcharge of up to 3% on acquisition of UK residential real estate. If brought in, that surcharge would give an effective top rate of stamp duty land tax for non-UK resident buyers of 15%. Combined with the separate 3% surcharge on second property purchases, that could increase to 18%. A new ‘mansion tax’ to accompany such a hike would be a further cost that would need to be factored in during negotiations.
So far there is little information about how or indeed if this tax will be imposed. If it is to be implemented, we would expect to hear about it in the planned Budget on 11 March. The recent resignation of the Chancellor, Sajid Javid, does, however, open up the possibility of either a delayed Budget or a complete change of policy on any proposed ‘mansion tax’. Whatever the outcome is, we will keep your informed of developments.
Whether such a tax would be implemented through an increase in council tax on higher value real estate or by some other means, it will be worth reviewing your position if and when the new rules are published in order better to understand their impact on you. For some, the new tax may motivate a different approach to their estate planning. We can help guide you through this process and ensure the protection of your and your family’s interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.