What could a Mansion Tax mean for London?

So we recently heard Ed Milliband’s (Labour party leader) speech. Whilst Ed was teased for forgetting to discuss the all-important economy (Ed is known to not use notes when speaking publicly), he certainly laid out his position for a “Mansion Tax”.

The Telegraph has reported on the possible eventualities of a proposed Mansion Tax. A key question is asked: How long will it take before your property is worth £2million? Therefore under a Labour government’s plans, the Mansion Tax threshold would be set at £2million.

Doubters in the property industry would already argue that the structure of the current Stamp Duty set up has created at times a distorted and unpractical market, where buyers can feel financially and psychologically constrained to make bids underneath a Stamp Duty threshold – thus creating a fluidity problem in the market place. Would we be in for more of the same with the Mansion Tax?

The Telegraph reports (based on some research), assuming you live in a property worth £400,000 today in London, that it would take 11 years to reach £1million and 18 years to reach £2million. A property worth £800,000 would take 3 years to reach £1million and 11 years to reach £2million.

So based on this, would you think differently about your property purchase? As a Buy-To-Let investor, an additional threshold item may change a strategy to property investing. Buy-To-Let investors would surely consider buying smaller priced properties and multiple properties than perhaps one expensive property that exceeds a mansion tax threshold.

If a Mansion Tax is indeed firmed up, it would be also interesting to see the rise of £2million and above properties to the market (for sale) in a bid to beat the threshold measures. This could give rise to a distorted bubble in the market place. There have already been remarks in the media over the last few months how the prime central London market has softened. The over excessive offer prices have been replaced with measured and calculative ones. Therefore, it all bodes for possible uncertainty.

Jeremy Jacob Letting Specialists have experienced some Landlords of properties in The Royal Borough of Kensington and Chelsea wishing to avoid committing to long term tenancies because of the uncertainty, and opting for a break clause as a solution (where traditionally such a request would not be made). It would seem if the Mansion Tax came in to play, there would be serious consideration to “cash in and get out”.

The Labour government pledge that the receiving of tax from the “Mansion Tax” will go towards returning the NHS to better standards. Can you trust another Labour government again so soon after the turmoil? They think this time they have cracked it. “Bust” wouldn’t happen again. But then, was it Labour to blame or the wider world crisis of 2007?.

We will leave that judgement with you.