"Total upheaval of the system would likely be a step too far, but the government may look to adopt additional higher bands for higher value properties as a means of increasing tax revenue. This would be easier to implement and wouldn’t require structural change"
- Oliver Prior - Auction House
Speculation around the government’s Autumn Budget has focused attention on potential changes to property taxation. Stamp Duty, Capital Gains Tax and Council Tax are all being considered for reform, with early announcements already creating uncertainty in the market, according to Auction House.
The company has reviewed the proposals and warned that they risk discouraging buyers and sellers at a time when confidence is already fragile.
Stamp Duty and a new property tax
The government is reportedly considering abolishing Stamp Duty on primary residences and replacing it with a national property tax. This would be charged annually as a percentage of the purchase price, likely on a sliding scale between 0.5% and 0.8% for homes worth more than £500,000.
“It is argued that Stamp Duty stifles market activity as a tax on trading,” said Oliver Prior, national commercial director at Auction House (pictured). “This makes the property market less fluid than it might otherwise be. A new property tax on primary properties could potentially remove barriers to entry and encourage stakeholders to engage with the market more readily.”
Council Tax restructuring
The debate on Stamp Duty coincides with long-running questions around Council Tax. With some local authorities facing large financial deficits, pressure is mounting to modernise the system, which is still based on 1991 property values.
“We are stuck in a pricing structure whereby multimillion-pound townhouses in the Royal Borough of Kensington & Chelsea might be paying the same monthly council tax bill as that of a flat in a less affluent part of the Borough,” explained Prior. “Council Tax is determined by bands linked to property values, back in 1991. The market has clearly moved on significantly since then, and the system of property tax should be updated to reflect this.”
He added: “Total upheaval of the system would likely be a step too far, but the government may look to adopt additional higher bands for higher value properties as a means of increasing tax revenue. This would be easier to implement and wouldn’t require structural change.”
Capital Gains Tax on primary residences
Reports also suggest that the Chancellor is considering removing Capital Gains Tax relief on homes worth more than £1.5m.
“Applying Capital Gains Tax to private residences will likely stall the market; downsizers could decide to stay put, which will reduce activity in the market and put downward pressure on growth,” noted Prior. “Applying Capital Gains Tax would be a particularly large burden for those living in higher-value areas."
"It could also affect the older generation significantly, as they are more likely to be living in homes that have appreciated in value over the course of 20 or more years. Capital Gains Tax will inevitably reduce levels of activity as people hold onto their property to avoid paying an ever-growing tax bill. To truly create more fluidity, property owners need to be incentivised to upsize and downsize freely, without a high tax burden being imposed on them.”
National Insurance on rental income
Alongside these measures, landlords could also be facing additional tax. Proposals under consideration include charging National Insurance on rental income, a move that would affect the private rental sector.
“We have seen it suggested that the Chancellor is considering charging landlords National Insurance on rental income in a bid to plug the £40 billion budget black hole,” commented Prior. “This is an unprecedented consideration that further squeezes landlords and weakens the viability of property ownership as an investment. If this tax is implemented, investing in property, which supports our rental market and the growing demand from renters, will be even less attractive to would-be investors.”
Uncertainty in the run-up to the Budget
“At the moment, these proposals are just that: draft proposals that the government is floating to see what, if any, land with the public. However, the discussion that this has opened is likely to make both buyers and sellers nervous in the run-up to the Autumn Budget. Sales may slow down over the next few months as the market waits for clarity,” said Prior.
“We could also see more buyers and sellers turn to auction, as we did in the lead-up to last year’s Autumn Budget. Auction has the advantage of enabling sales to move quickly and with security, giving buyers and sellers confidence that the sale will go through once the hammer goes down.”
