All change! Next up, property tax?

She’s at it again. No sooner have I put the finishing touches to a client op-ed on the latest set of changes to come out of Whitehall, and Rachel Reeves has up-ended the news agenda for the umpteenth time, now with rumoured considerations of an end to Stamp Duty Land Tax (SDLT). 

Paid upfront by buyers when purchasing property in England and Northern Ireland, the tiered system we all love to hate is currently based on property value, with rates ranging from 0% to 12%, and includes surcharges for second homes and non-residents. In place for over two decades, it’s worth in excess of £11bn to the UK economy each year. 

But that may all be about the change. Last week, media reports revealed that the Chancellor is considering a radical overhaul of SDLT as part of efforts to address the £40bn fiscal deficit. The proposed reforms include replacing it with a national property tax levied on homes worth over £500,000. Unlike SDLT, which is paid upfront by buyers, the new tax could be paid annually, much like the US model, which largely encourages market fluidity, in contrast to the somewhat punitive ‘hit’ faced here with any move up or down the property ladder.  

There’s also speculation it could be paid upon sale and potentially by sellers instead. 

Joining the party are also suggestions of a mansion tax through the introduction of Capital Gains Tax (CGT) on primary residences that sell for over £1.5m, plus a council tax overhaul based on current property values rather than those of 1991, which are still in play today. 

Unsurprisingly, the potential implications of such an overhaul have sparked significant debate and dominated the headlines ever since. 

The general consensus is one of cautious optimism for an end to the outdated system, which has gone as far as being described as unfit for purpose and a barrier to housing mobility. Indeed, the vast reduction in upfront costs is a big win, improving market accessibility for first-time buyers and finally incentivising movement all round. And more transactions are good news for the Chancellor’s other enduring headache: economic growth. 

Though this is met with equal concern around some of the potential replacement measures. In particular, the £500,000 threshold (£375,000 above that of the current standard exemption) and absence of any proposed levies on properties below this. With over three quarters of all home sales over £500,000 occurring in London and the Southeast (according to Hamptons International data), the north-south divide is set to be supercharged, as southern regions bear the brunt of the new regime. 

In addition, wealthier homeowners, particularly those in high-value areas, could face significantly higher tax burdens that see them better off staying put, along with older owners who are likely to be discouraged from downsizing with the prospect of a CGT bill on their family home. All serving to stagnate the market in both locations and house types where stock desperately needs to be freed up.   

The mathematics have also come under question. While the gradual annual levy is expected to raise as much samp duty each year, according to a report said to be influencing the Treasury’s thinking, other experts have pointed out that it wouldn’t replace the lost revenue the upfront payments provide immediately. As Savills' head of residential research, Lucian Cook, puts it: the idea "probably falls at the first hurdle" [in its goal to plug the fiscal gap] because it would take time for it work. 

Further to the possible shake-up itself, the more immediate effects of such musings have given cause for concern, ost notably, their fuelling a state of chronic uncertainty that is keeping buyers, sellers and investors in ‘wait and see’ mode - ultimately crippling the very market activity the overhaul aims to promote. Even the nation’s property darling herself, Kirstie Allsopp, took time out of team Love It to warn that such speculation is “destabilising for the property market” and urging the government not to “fly kites” with unconfirmed policy ideas around something that affects every aspect of people’s lives. 

With the Autumn Budget expected to provide essential further clarity, the industry and its markets are watching closely. Whether these changes will unlock housing mobility or deepen market uncertainty remains to be seen.