At the end of last year, Westminster got tagged as the least desirable London borough for property purchases. The borough experienced the biggest decline across the city, with demand for property down by 42 per cent.
One of the reasons is believed to be a direct result of the stamp duty reforms and the proposed ‘mansion tax’, which would price Westminster out of most people’s reach – even the modestly wealthy. According to a recent survey conducted by online estate agency, eMoov.com, the central borough was the worst performing of all boroughs in the capital, with only 17 per cent of homes on the market being sold during December 2014, compared with 29 per cent during February of the same year. This puts Westminster in the bottom ten per cent of desirable places to live in London.
Recent changes to stamp and land duty have demarcated properties valued over £932,000 as the threshold where the benefits peter out and stamp duty increases. Speculation about mansion tax (which will be introduced in the advent of a Labour win in the May General Election) has raised concerns about the borough falling even further down the ladder of desirability. The mansion tax will target homes valued from £2m and upwards. It’s prompted estate agents to say that the property market between £2m and £10m has effectively been given the kiss of death.
Not all is as it seems
It seems logical to assume that affordability of a home with such a hefty price tag automatically qualifies the property owner as sufficiently affluent to afford the annual taxes, but this may well be a misconception.
Many mansions are passed down in families whose fortunes may otherwise have suffered. So while a once wealthy family may have thought nothing of spending millions of pounds on a home or two, generations down the line may just have enough of the fortune left to allow them to live out their lives in moderate comfort. Ask them to pay tens of thousands of pounds in annual tax and the bank is broken. Essentially, someone might own a home worth £2m but still be unable to generate sufficient revenue to cover the annual tax on the ‘mansion’.
Mansion is also a tad misleading because the word conjures up images of extreme wealth and privilege but what does £2m really buy in the top boroughs of the capital? Certainly not a mansion, but perhaps a lateral two bedroom flat in Covent Garden with two bathrooms, an open plan kitchen and living space, Miele appliances and stone worktops, which is nobody’s idea of a mansion.
However, London isn’t the only city battling high stamp duty. According to the Bolton News, a multi-million pound mansion in Westminster pays £350 more in council tax per annum than a two-bedroomed terrace house in Bolton. Affluent areas in the capital are charged around £1,353 for a band H property (the highest) while homeowners in Bolton are charged around £1,000 a year for band A property (the lowest).
This is not a reflection of preferential treatment for the wealthy; it’s more a case of what each council collects in taxes and how it addresses imbalances in what is needed to run the services and what it generates in revenue.