Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.

Labour’s plans for a “mansion tax” will cost tax payers millions in having valuations done and will very likely trigger a wave of disputes, as property owners get sucked into arguments with the government about what their home is worth.

Uncertainty of an election outcome means that now a mansion tax is a distinct possibility, and Labour has set out more detail about its plans to raise an extra £1.2 billion for the NHS.

The mansion tax will most likely be based on the same Annual Tax on Enveloped Dwellings (ATED) payable by companies that own UK residential property valued above a certain amount.

Owners of properties worth £2 million will be asked to self-assess the value of their property and people who innocently mis-value their property will face fines of 30 per cent of the tax owed, rising to 100 per cent if it can be shown to be intentional.

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But accountants are warning that the system of self-assessment, combined with a volatile property market where estate agents often over-value large homes by hundreds of thousands of pounds in order to bump up the market and sales values, would be an “explosive mixture”.

When taxpayers complete their annual tax return they will have to take responsibility for the figures they give on valuations and consequently will be completely exposed to penalties and interest charges if HMRC disagree on values. Having the property professionally valued will be the safe option, but accountants then expect the regime will result in a spate of appeals.

Detailed valuation surveys will cost homeowners around £2,000 for a £2m home and property agents are predicting numerous disputes, as homeowners argue over the value of their home, as these can vary by as much as 10 per cent depending on their condition.

A further complication is that the Valuation Office Agency (VAO), the part of HMRC responsible for property valuations appeals, is already overloaded with a backlog over business rates appeals, so expect long delays.

Richard Donnell, research director of property data company Hometrack, told the Financial Times:

“It’s going to create a fantastic industry for surveyors trying to prove that a home isn’t worth £2m. It’s a boom for valuers, surveyors and consultants.”

Knight Frank, the property consultancy, has estimated that about 95,000 homeowners are likely to pay the “mansion tax” on properties worth more than £2m.

Experts have predicted that a mansion tax would reduce property prices, as evidenced by an already stagnating market in high end properties in anticipation, and the net result they predict would also depress the amount of stamp duty land tax and inheritance tax collected.

Most tax and property experts think that tax hikes on expensive properties are on the way in any case. House price inflation over recent years has overtaken the council tax system, where expensive properties are taxed at relatively low rates, which are based on property values 25 years out of date.

Others are predicting the tax levy will force out existing and cash strapped older residents in high end areas such as Kensington and Chelsea, which have the highest concentration of £2 million plus homes, leaving the coast clear for even more absentee billionaires to move in.

Accountants are already reported to be considering how the tax could be avoided. One way might involve breaking-up properties into two or more legal entities, which can easily be achieved in a large detached property with basements etc.

Other options would involve – similar to the measures used to avoid inheritance tax by Ed Milliband’s family – placing the property in a family discretionary trust, which could be a way of avoiding deferred mansion tax payments after death.

Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.
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