First, the government must be in a tight financial spot if the words ‘capital gains tax’ and ‘main residence’ are being mentioned in the same sentence.
Second, the Chancellor wants to further skew taxes towards those in higher-value properties.
Third, we are at the stage of throwing ideas against the wall before the Budget to see which stick.
Yes, there was a lot of noise, but most recent governments will have considered the same ideas.
The difference now is that we have a Chancellor where a combination of ideology and financial desperation means she may attempt to implement some of them, irrespective of their merits.
A story in the Guardian kicked things off, citing a proposal to scrap stamp duty.
So far, so good – at least in theory. The principle of removing barriers to social mobility like stamp duty is sound. Moving home creates knock-on benefits for the whole economy.
Getting rid of it would create a £10bn hole in the public finances. The proposal is to partly plug the gap with a tax on sellers above a certain value. A figure of £500,000 was floated, which was subsequently “vigorously denied” in a Telegraph story. Perhaps the real figure on the table is higher? Or perhaps the midsummer speculation was getting ahead of itself?
Predictably, some buyers have seen headlines about stamp duty being scrapped and are sitting on their hands – but things are not that simple.
A huge undertaking
The rest of the hole would be filled by re-banding council tax – a vast undertaking that couldn’t be achieved during this Parliament. It may also require a local/national split of the proceeds.
So, nothing would happen quickly.
But the fundamental problem with a tax on sellers of high-value property is that the Treasury would be relying on the most discretionary part of the property market for a steady flow of revenue. As for the knock-on economic benefits of moving house, the proposal would slow down the market to a greater extent in London, the economic epicentre of the country.
A sellers’ tax therefore feels like a flawed idea. However, re-banding council tax feels overdue – rates are still based on 1991 property valuations.
The other problem is that none of the above would dig the government out of its financial hole in the short-term, which is why the debate is happening in the first place. The government may have stumbled across some good ideas, but they don’t address the problem they are trying to fix.
Note to buyers hoping for stamp duty to be scrapped any time soon: you will probably be disappointed.
A Divided Market
Next came a story in The Times that the government was considering making capital gains tax payable on main residences above a certain threshold, with a figure of £1.5m being suggested.
Whether that was in addition to the stamp duty changes was unclear. Nor was it obvious whether a sellers’ tax and capital gains tax were actually the same idea under a different name.
The speculation itself would also have had an immediate impact.
Note to sellers: if you are sitting on a taxable gain and thinking about selling, you might want to accelerate your plans before the Budget.
The proposal would also immediately create a split in the property market between those sitting on a gain and those who are not.
For example, I’d be surprised if there was anything to tax in prime central London from the last decade as prices have fallen 20%.
What has also been overlooked is that those with the broadest shoulders are already bearing the heaviest load in the UK property market. The basic level of stamp duty on a £5 million property is more than half a million pounds.
The fact stamp duty rates have already been pushed so high is why taxable gains have largely disappeared over the last ten years.
Note to the government: the pips are already squeaking.
Buyers Read Opinion Polls
Any tax that curbed demand further would restrict future gains and therefore may well be self-defeating.
The other, rather large, obstacle the government faces with plans to tax property transactions is that buyers and sellers can read opinion polls. Some will simply hang on until the next election – scheduled or otherwise.
The fundamental issue troubling the government hasn’t changed since it was elected last July.
It has pledged not to raise VAT, income tax or national insurance, which together account for two-thirds of its annual tax take. Stamp duty accounts for just less than 1% and capital gains tax just over 1%.
In summary, a lot of noise has been generated in a short space of time over what are effectively rounding errors for the government.
Tom Bill is head of UK residential research at Knight Frank.
Read the orginal article: https://propertyindustryeye.com/what-have-we-learned-from-the-recent-swirl-of-speculation-around-property-taxes/
