Could mansion tax push investors out of London?

It seems to be a “given” that luxury properties across the UK will be hit with a so-called mansion tax in the next Parliament. Even if the Conservatives, often seen as the party for business and investors, is able to cling on to number 10 Downing Street it will likely be as part of a coalition which would demand the introduction of a mansion tax in exchange for support. This will have a significant impact upon luxury property owners in London and will also make many investors think again about the capital.

For many years now there has been speculation that ever increasing taxes on so-called “luxury properties” would push investors away from London into the regional property markets which have not performed as well. Many of these expectations have turned out to be “false dawns” but there is a growing belief now could be the time when investors do begin to look away from the capital.

Is there value outside of London?

When you bear in mind that some of the rental yields on London’s most luxurious properties are less than those on traditional government gilt-edged securities this sums up the situation. In many ways investment in luxury properties in London is for the rich and famous as many will live in their properties and are not necessarily concerned about rental income. Whether some foreign investors will think again remains to be seen but on a pure facts and figures basis there does seem to be good value outside of the capital.

Economic performance

London and the South of England seem to benefit more than any other parts of the UK when it comes to economic performance. Indeed these are the two areas which have again benefited most from the recent recovery with some parts of the country still struggling. The Conservative party has promised to decentralise an array of public services and indeed the subject of the North/South divide has also reared its head again.

Politicians now seem prepared to address this ongoing issue with further devolution recently passed to the Scottish Parliament prompting calls for regional devolution. It is unlikely that excessive powers will be given to individual areas of England but we could see a significant shift in government investment. It will take many years to rebalance the UK economy but, as this rebalancing begins to take shape, it will impact regional property markets.

Are we on the verge of a seismic shift in the UK property market?

If we look at the various promises from political parties ahead of the general election we could see up to 300,000 new properties built by 2020, an increasing tax on luxury properties, more help for first-time buyers and a rebalancing of the UK economy. On the surface we could be on the verge of a seismic shift in the UK property market, with many investors looking away from London for the first time in years, but time will tell.

It is ironic that politicians use the property market as some kind of economic benchmark in troubled times, often supported by foreign investors, although when economies recover they are happy to “bite the hand that feeds them” and penalises foreign investors. Will foreign investors have their revenge on UK politicians by fleeing from the London property market?