With a property tax shake-up reportedly in the offing, there is buyer nervousness and concern that reforms will hurt 'the wrong people'
A replacement for the much-maligned stamp duty tax has been welcomed by industry professionals, but there is fear about what the reported property tax shake-up will ultimately look like.
As reported this week, Chancellor Rachel Reeves and her Treasury team are said to be weighing up proposals to replace stamp duty and reshape council tax. With the Autumn Budget looming, brokers are on high alert for a potentially seismic shift in the costs and incentives surrounding home ownership and transactions.
At the heart of the Treasury’s deliberations is a new national property tax on homes worth more than £500,000, which will hit owners when they sell and replace stamp duty on owner-occupied homes. However, stamp duty, long criticised for distorting the market and impeding mobility, would remain in place for second homes and buy-to-let properties.
Jeremy Leaf (pictured above left), north London estate agent and a former RICS residential chairman, suggested the property tax proposal is just council tax in another name. It’s the easiest route forward, he explained, as a new, separate tax would take time to approve. The question is: how much will council tax (or property tax) be raised and will more structural changes take place
“We are very much in favour of incorporating this tax as a substitute for stamp duty as the latter is a tax on moving,” he said. “We are trying to encourage growth; as a country, we want to see improved job and social mobility. Stamp duty stops that, particularly among those on the margins, such as first-time buyers, as it is such a big investment.”
He added: “We can see the advantage in taking tax from people who have benefited from an increase in property values, but the fear is that it is going to impact the vulnerable. Those of retirement age, say in their late sixties, might be able to move into a flat or bungalow, should they be able to find a suitable one, with not too much of an issue. But for those more on the margins, say in their early eighties, who are not so mobile and don’t want to move out of an area where they have lived comfortably for many years near family and friends – why should they have to move some distance where property prices happen to be cheaper?
“We understand the issue of right-sizing and getting people in the right properties as far as possible but forcing people to downsize, particularly the most vulnerable and compromised, must be avoided.”
Leaf is far from alone in his dislike of stamp duty and ministers are aiming to address the persistent criticism that it’s a drag on market fluidity. The Labour government is also under mounting pressure to find new, stable sources of revenue to cover a projected £50 billion shortfall in public finances. By targeting the accumulated gains in property values - particularly in the upper tiers of the market - the government hopes to raise substantial sums without breaching its manifesto pledge not to increase taxes on “working people”.
Adrian Anderson (pictured above centre), of Anderson Harris, told Mortgage Introducer the current debate gives him flashbacks of the proposed “mansion tax,” a 2015 policy championed by Ed Milliband and then Jeremy Corbyn that was eventually dropped. Anderson said that given Reeves’ pledge not to raise major taxes, it’s likely she will be “tinkering around the edges in the realm of property and wealth-related taxes.”
“These rumours are not new or surprising,” he said. “There is so much wealth locked up in the UK property market it seems to be an easy target.”
His immediate concern is that £500,000 is a low bar, especially in London or the South East. However, the more pertinent question, he believes, is whether existing property homeowners are going to get scooped up in paying an annual property tax or whether it will be only for new purchases.
He said: “[An annual tax] may make buyers think twice about the value of the property they purchase if there is an ongoing cost associated with that property. It is another factor creating nervousness for those seeking to purchase, and potential buyers may wait to see what happens.”
Anderson agreed that stamp duty is extremely unpopular and, in his view, a big barrier to people moving. In particular, the rate at 10% for the portion from £925,000 to £1,500,000 and 12% for the remaining amount above £1,500,000 is a major deterrent for buyers. Removing the tax could stimulate activity in the market but Anderson worries its replacement could be even more costly for owners over time.
For David Titherington (pictured above right), from The Mortgage Station, the lack of detail thus far makes it hard to draw conclusions. However, he believes a change from stamp duty is needed and he hopes any plans will eventually include changes to the stamp duty you pay on additional properties, which can inadvertently target the wrong people. He highlighted a recent Bulgarian client, who has indefinite-leave-to-remain status and who assumed she would be classed as a first-time buyer. However, she was named on her parent’s property in Bulgaria and, therefore, was not. Instead, she was subject to the additional stamp duty.
Titherington explained: “The property in Bulgaria was worth about £40,000. The property she wanted to purchase was £250k. Stamp duty would have cost her £15,000. She’s a single applicant and has done really well to save the 10% deposit already. If classed as a first-time buyer, she’d have paid £0. I’d like to see some more common sense in these types of scenarios as the purpose of this additional tax can target the wrong people.”
