In light of Labour leader Ed Milliband’s suggestion of the introduction of a Mansion Tax, Simon Morris asks what such a measure would mean for UK property investment funds.
The Role of Tax in the Profitability of Profit
Through his role as a property specialist who uses his industry knowledge to highlight to UK property investment funds how best to accrue high profit margins from their property portfolios, Simon Morris has come to understand the role that tax plays.
Tax can not only effect profit margins directly, but effect long term revenue streams accrued from rental property through the impact it has on tenants. This is why many are suggesting that the Mansion Tax would not be viable in the UK’s current property market.
What is the Mansion Tax?
To understand the effect it could have, you first have to know what the mansion tax is. It is a measure that Labour leader Ed Milliband plans to put into effect should they win the 2015 general election, which would levy a tax on expensive residential properties.
At the moment, this is only an idea, yet advocates have already suggested how it could be imposed. One way to do so, they have argued, is to increase the Stamp Duty Land Tax (SDLT) to 5% for properties worth £1 million from 2015. Another, is to lift capital gains tax on overseas owned property starting from next year.
How Might the Mansion Tax Be Bad for Property Values in London?
And here we can see the sort of effect that a mansion tax may have on the property market. All we need to do is look at prime central London to see that it could be bad for property prices.
Prime central London – due to its location and exclusivity, has proved an attractive market in recent years. This has been buoyed by the fact that council tax for the most expensive buildings in the Westminster area, is on average, only £14 more per year than that payable for a second floor flat in Weymouth, drawing major players to its property market.
However, if these Mansion Tax measures were introduced, more than likely the council tax for these buildings would go up. Therefore, they would become less attractive to wealthy investors, which – considering the prominent role that central London plays- could drive down property values throughout the entire London property market.
The Mansion Tax Could Effect Everyone’s Profit Margins
Therefore, Simon Morris argues that a Mansion Tax could be bad for UK property investment funds, because it would act to make it more expensive for investors to capitalise on an area’s most lucrative property. This in turn has the ability to drive down values across an entire area, effecting everyone’s profit margins.