The Government is being urged to “carefully consider” its controversial plans to reform property taxes.
Reports last week suggested that Chancellor Rachel Reeves is eyeing up a capital gains tax on primary residences worth more than £1.5m – an effective mansion tax.
Additionally, there were rumours about plans for a national property tax that could replace Stamp Duty on owner-occupied homes. One proposal under discussion includes imposing a new tax on properties valued above £500,000, possibly as a precursor to wholesale stamp duty reform.
Rightmove has warned that any changes to property taxation must avoid unintended consequences which would risk stalling parts of the market.
Its analysis showed that just under a third (30%) of homes for sale in England are priced at over £500,000, and would be subject to a proposed new annual property tax which would replace Stamp Duty
In London, more than half of homes (59%) have an asking price of over £500,000 and would be subject to the rumoured annual property tax if it came in, versus just 8% in the North East
A fifth (19%) of agreed property sales so far this year in England have been for homes over £500,000 but this varies regionally.
In London, more than half (52%) of agreed property sales so far this year have been over £500,000.
In the North East, just 4% of agreed property sales have been for homes over £500,000 so far this year
Meanwhile, Righmove said just over 1% of all home sales agreed this year have been for properties above £1.5m, and would be subject to the potential new capital gain ‘mansion tax’ if it came into effect. However, the regional impact is varied.
In London, one in ten (11%) of homes for sale are in this price bracket, with 5% of agreed sales so far this year being for homes above £1.5 million
In the South West, 0.7% of agreed sales are in the £1.5 million price band, with 2% of available homes for sale in this price bracket
In the North East, just 0.1% of agreed sales are in this upper-end bracket, with only 0.5% of all properties available for sale priced at over £1.5 million?
Johan Svanstrom, chief executive of Rightmove, said while shifting the tax burden onto the seller could be beneficial for first-time buyers, the saving could be wiped out if sellers simply build some of the charge into a higher asking price.
He added:“If the responsibility for property taxes shifts onto the sellers’ side, the Government will need to really think through how this transition will be phased in to avoid slowing down the mass market.
“Those who have recently paid Stamp Duty as a buyer and would face paying property tax as a seller in the future would clearly be at a disadvantage.
“As we’ve seen around moments such as Stamp Duty changes, we could see some distortion in the market for properties at or close to the £500,000 mark if this does end up being the threshold, with movers at this price range understandably keen to avoid the new tax if they can.”
He said it needs to be made easier and more attractive for those at the top of the market to consider downsizing if they are in a position to do so, adding: “There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the Stamp Duty bill. The current rumours to stamp duty changes would only seem to exacerbate this, as it may deter some at the top of the market from moving if they would then face a new annual tax.
“As our real time data shows, a proposed mansion tax would only affect a small proportion of the market. However, the Government needs to be cautious over the cumulative effect of taxation on higher priced areas of the country as it simply risks stalling this part of the market, since the importance of mobility for people and the overall economy is strong in those areas too. A slower market can affect all types of movers, from first-time buyers to key workers and families, even if a tax is aimed at higher value properties.”
Svanstrom said it is encouraging that changes to Stamp Duty are being considered as there are many ways the current system can be improved or made fairer.
He said: “Under this week’s rumoured proposals, there would appear to be some benefits to first-time buyers, but more consideration needed for the mass-market caught between two systems, and downsizers.
“The key question is whether these changes would actually generate more income for the government. It depends on the designs of reforms for taxes and fees, as well as the rates, but if they reduce mobility through these changes, they risk having the opposite effect and losing out in the long run.”
Source: Estate Agent Today
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