UK's mansion tax called a 'political stunt'

Resentment over wealthy foreigners buying up real estate has created new calls for a "mansion tax" in the U.K. But real estate agents say the tax could reach far down the economic ranks and hurt the property market.

Shadow Chancellor Ed Balls said that if it takes power, the Labour Party would introduce a mansion tax and use the money to improve national health care. The plan calls for an annual tax on properties worth more than £2 million, or $3.3 million.

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An actual rate hasn't been set yet, but proposals call for a "banded," or tiered tax, with lower-value properties paying a different rate than more expensive properties.

Britain's shadow chancellor Ed Balls speaks at the Labour party's annual conference in Manchester, northern England September 22, 2014.
Suzanne Plunkett | Reuters
Britain's shadow chancellor Ed Balls speaks at the Labour party's annual conference in Manchester, northern England September 22, 2014.

The British Property Federation, a real estate trade group, called the move a "political stunt."

In today's hyperpriced London real estate market, £2 million is hardly a mansion, some analysts and real estate agents said. And many families who are house rich and cash poor (and owned their property for years) will be hard-pressed to pay.

Liam Bailey, global head of research at real estate firm Knight Frank, said 1 in 10 of the homes that would fall under the tax are one- or two-bedroom flats in London. Another 17 percent are three-bedroom homes and only 1 percent would be considered "mansions" in the traditional sense, with 10 bedrooms or more.

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There are about 110,000 properties in the U.K. valued at £2 million or moretwice as many as in 2009, when the idea of a mansion tax on £2 million-plus homes was first floated, Bailey said.

About 86.4 percent of those properties are in London and South East England, effectively making it a regional tax, he said.

"It's quite clear the objective of this is political," Bailey said.

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The U.K. already increased the sales tax on homes valued at more than £5 million in 2012 in an effort to slow price growth and raise cash. However, the proposed mansion tax may not kill the London property market, since the rates being discussed are likely to be relatively low, Bailey said. The tax is only estimated to raise around £1.2 billion.

"I think it will be absorbed by the market," he said.

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The U.K.'s mansion tax follows similar efforts in Hong Kong and Singapore to slow price growth driven by foreign buying and speculation. Singapore imposed an additional 10 percent stamp duty on foreign buyers and stricter lending standards. Both steps slowed real estate demand.

Hong Kong introduced measures such as a "flip" tax on properties resold within six months and a hike in the sales tax on properties valued at HK$20 million (or about $2.5 million) or more. Hong Kong also added a tax on nonlocal buyers.

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