The property industry has just been warned by Communities
Secretary Sajid Javid to "keep an eye out" for changes to
real estate taxation in this year's Autumn Statement.
Change is indeed needed, but would come hard on the heels of a
bewildering number of changes over the last few years that have
left the industry reeling, and with little faith in
Government's ability to do anything but attack the golden goose
with murderous intent. So here is a plea for a different
Stamp Duty Land Tax has become a huge additional expense to
moving home over the years since it replaced the flat rate Stamp
Duty. It is a brake on mobility and unfairly penalises people who
need to live where homes are expensive.
The Government should move to shift the revenue burden from the
most expensive time in most people's lives - completing the
purchase of their home - on to the Council Tax system. This is the
levy paid annually by households to Local Authorities, with
property put into different bands based on value. Unfortunately,
that band valuation was last done in 1993, when the average home
cost £62,000, not the £218,000 it costs today.
An immediate review followed by a shift of emphasis away from
Stamp Duty Land Tax and on to Council Tax would not only give extra
money to cash-strapped local authorities, but would put them in a
better position to build or enable more affordable homes for rent
or sale. It should also reduce house prices for those wanting to
own a home as Stamp Duty Land Tax was reduced.
Whilst this shift in emphasis would certainly mean that annual
costs going forward would be higher for some buyers, the
significant increases could be targeted at the most expensive end
of the market. Additional charges could also be introduced for
properties kept empty, or indeed investment properties, balancing
things in favour of owner occupiers. Council Taxes are generally a
manageable expense, particularly as payment can be spread out in
Local Authorities would receive more money over the ownership
lifetime of a home, as opposed to the current Stamp Duty Land Tax
regime, whereby a one-off levy goes straight to the Treasury, and
does not benefit the areas in which it is collected.
This reform ought to be an obvious one for a Government
ostensibly committed to both devolving more power locally (power
costs money) and improving the opportunities for home
The problem currently is that the rapid escalation in property
prices has created an unsustainable imbalance between ownership
taxes and acquisition taxes. Each rise in property values increases
this distortion still further.
This may be good news for the Treasury, but it isn't for
anyone trying to buy a home, particularly in property hotspots such
as London and much of the South East, where the affordability gap
is now acute and there are not enough homes to buy or rent.
The failure to revalue for council tax purposes is also palpably
unfair, meaning that many people are denied the opportunity to move
down a band.
Research suggests that a revaluation of Council Tax should be
relatively painless. Only four per cent of London homeowners would
be likely to see an increase in their bills in excess of 50 per
cent according to the Joseph Rowntree Foundation, experts in social
policy. Not bad, then, especially as a number of London Councils
have the lowest Council Tax in the country.
Most countries have a version of Stamp Duty Land Tax, of course;
and this is not an argument for abolishing it entirely. But the
Government has been wrong to keep increasing the take and using it
as a blunt instrument to try and improve supply. That simply
isn't working. Instead, the rising Stamp Duty Land Tax take in
the UK is distorting the market, stopping sales and reducing
opportunities for mobility.
An annual tax based on the actual current value of a house is a
fairer system, provided relief is available for those who suddenly
find themselves becalmed in a valuable home but without the income
to stay there.
Whatever the Autumn Statement brings, let us hope that Ministers
have really thought about bringing fairness to the system,
encouraging mobility and creating an environment that makes it
easier, cheaper and more likely for the industry to build more
Under current law, where a business subject to corporation tax or income tax reallocates an existing asset into its trading stock, the basic rule is that there is a deemed market value disposal of the asset...
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