If you are a buyer who is not in a rush to move and might be able to avoid paying thousands of pounds by delaying a few months, why wouldn’t you wait and see?
Ditto if you are a seller and may stand to get clobbered with an unexpected tax bill if it takes your home a while to sell, it could affect your next purchase.
Wouldn’t you want all the information at your fingertips before making an expensive and life-changing decision like buying a home?
And this is one of the major issues with short-term housing policies like these.
Government must stop using housing as a political football
It doesn’t matter whether you’re trading in Wellington boots, stock and shares or houses, markets hate uncertainty.
There are all sorts of causes and effects created by endless tinkering by successive governments. They’re toying with people’s lives, their families, their homes, their security and their ability to plan.
We need a cross-party policy that’s going to stand for 25 years, not five. Everyone could get behind it, know where we’re at, and plan accordingly.
Housing is too important to all of us, the whole of society. It should not be a political football.
What are Rachel Reeves’ rumoured property tax changes?
Currently, if you are selling the home you live in any profit you make will be exempt from CGT but recent reports suggest that the government may remove this relief for high-value properties.
The speculation suggests that sellers would pay 18 or 24 per cent tax on the increase in their home’s value, depending on whether they are a low-rate or high-rate taxpayer.
Other measures reportedly up for consideration include abolishing stamp duty tax and the introduction of a national property tax on homes valued over £500,000. That figure has subsequently been denied, but if accurate it could be catastrophic for high-cost areas like London. It certainly wouldn’t be a tax grab limited to the wealthy, but a tax on ordinary Londoners.
Capital gains tax would discourage downsizers, hollow out London and increase rents
There are an estimated 19.5 million empty bedrooms in the UK — so if we could only unlock space by motivating downsizers to sell, that would be a big win.
But if they would have to pay a capital gains tax, why would they? It’s hard enough as it is to downsize with the thought of paying stamp duty on your next home, but a downsizer faced with having to pay tax on the equity in their family home of 20-plus years is never going to go for it.
The majority of homeowners will also have paid stamp duty when they bought their homes, so to then be asked to pay CGT of up to 24 per cent on any increase in the value of their home would be a bitter pill to swallow.
The plan also raises the prospect of homeowners paying tax on inflationary gains and, in many cases, losing money in real terms.
If we have capital gains tax on the horizon too, any remaining amateur landlords would also be likely to sell.
Reducing supply of homes in the private rented sector would increase upward pressure on rents, and simultaneously increase pressure on the state housing system. It’s not a pretty picture is it? Where is everybody going to live?
People would sell up and leave London in droves
If, as has been suggested, the CGT would come into play for homes priced over £1.5 million, it is essentially a tax on the most expensive areas of London and the South East.
Despite the prime market having actually fallen in value in real terms over the last decade, I expect a tax that reduces demand in that price bracket even further would end up being self defeating.
A tax on transactions impacts behaviour. Anyone with a taxable gain would think long and hard before selling, which in the long-term would heavily reduce transaction numbers. On top of this, it would also affect the prospect of future gains.
In the short-term, presuming such a tax would only kick in at a particular point in time – say in a year or two – it’s difficult to exaggerate the disruption and distortion that would take place in the lead up to that date.
People would be selling up and leaving London in their droves. Half of London would be on the market before any changes came into effect. It would be catastrophic.
London needs stamp duty reform
If it were up to me I would completely abolish stamp duty for first-time buyers immediately. Coming up with a big chunk of cash within 14 days of completing on a savings-draining starter home is a huge deterrent from buying, especially in London.
Last month I was involved with the Stamp Duty Reform campaign which calls for stamp duty costs to be spread over two to five years, rather than due within 14 days, a delayed payment concept HMRC are perfectly accustomed to.
Having regional thresholds would address the current penalties imposed on buyers in more expensive regions. Buyers in London and the South East for instance should have higher nil-rate bands than buyers in the UK’s cheapest areas.
The real answer the property tax conundrum
If it really was to happen, I would hope any changes would be phased in slowly; but then just look at the family farm tax which was announced out of the blue without consulting public opinion.
But say it’s phased in over a period of two years — the market will go crazy to start with and then gum up and stall as the time arrives.
The real answer is to create a more liquid market. When moving home is easier, quicker and less costly, households can find the right homes, builders can supply the market and the Chancellor collects more revenue through higher volumes of transactions.
A faster, more streamlined housing market is better for families, better for business and better for public finances.
Phil Spencer shares his advice over on his website moveiQ.co.uk
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