News Analysis – Property taxes in chancellor’s Budget crosshairs   – Mortgage Strategy

Property is firmly in the chancellor’s sights as the Treasury looks to raise as much as £20bn in the autumn Budget to plug a hole in the public finances.

Rachel Reeves is understood to have instructed officials to draw up tax-raising measures that affect every area of the market — from first-time buyers to professional landlords.

Last month, “kites were flown to test public reaction” across four areas of the market, as John Charcol senior mortgage technical manager Ray Boulger put it in comments to Mortgage Strategy.

Does this mean that landlords are now paying a property tax and tenants do not have to pay council tax? Watch rents go up if it does

Details on these measures are lightly drawn so far, and indeed may never see the light of day if the chancellor decides to pursue other options to fill the government’s coffers in her fiscal statement, expected in November.

The department is considering a new property tax on the sale of homes worth more than £500,000.

This tax would be paid by homeowners rather than buyers, as is the case with stamp duty, at a rate to be determined by central government.

Currently, buyers in England and Northern Ireland are required to pay stamp duty on properties valued over £125,000. For first-time buyers, the threshold is £300,000.

The levy raised £11.6bn last year, according to government data.

The new property tax would affect only about a fifth of property sales, compared with about 60% for current levels of stamp duty.

International buyers in particular could be deterred, which may influence the wider prime property market

Meanwhile, a new local annual property levy is being looked at to replace council tax
over an unspecified phased period.

This would see owners, rather than the residents, of a property worth up to £500,000 paying varying rates of tax depending on the value of their home. The levy, which may take years to come into effect, is expected to start at £800 a year with funds going directly to local councils, whose finances have been stretched in recent years.

Connect Mortgages chief executive Liz Syms says: “Stamp duty is often criticised as a barrier to movement, particularly for those upsizing or downsizing.

“Replacing it with a seller-side property tax would improve things for buyers, which could stimulate demand.

“However, pushing the cost onto sellers actually risks reducing supply, as it will make some homeowners think twice about moving.”

Any such landlord rent rises may result in issues with the Renters’ Rights Bill

Trinity Financial products and communications director Aaron Strutt illustrates how sellers might end up squeezing supply.

“Some homeowners might stop spending cash refurbishing their property if they know the work will push their property value over £500,000,” says Strutt.

“Others will stay in their home for a lot longer out of principle.”

Moves for a local property levy to replace council tax are fundamental to local authority accounts, although further details are light on the ground at this stage.

But mortgage experts point out that the proposals mean that property owners, rather than the residents, will foot the bill.

Mortgage Finance Brokers business development director Jeni Browne wonders: “Does this mean that landlords are now paying a property tax and tenants do not have to pay council tax?

“Watch rents go up if it does.”

MSP Financial Solutions director Chris Sykes adds that any such landlord rent rises may result in “issues with the Renters’ Rights Bill” currently progressing through parliament, which imposes restrictions on rent rises on private tenants.

Landlords may also be hit by proposals to apply National Insurance to rental income, in a move the Treasury hopes will raise £2bn. National Insurance is currently taxed at 8% for employed people and 6% for the self-employed.

For income and profits over £50,270, the rate falls to 2%.

Some homeowners might stop spending cash refurbishing their property if they know the work will push their property value over £500,000

Landlords currently pay income tax on profits from rent, although there is 20% relief on mortgage interest, and property investors can subtract allowable expenses, including maintenance and letting fees.

National Residential Landlords Association chief executive Ben Beadle says that such a measure will only lead to “rents going up, hitting the very households the government wants to protect”.

He expands: “It would come on top of last year’s increase to stamp duty on homes purchased to rent, and proposals expecting landlords to pay up to £15,000 on energy efficiency improvements to properties.”

At the top end of the market, the Treasury is considering ending the longstanding capital gains tax exemption on primary residences above £1.5m.

Homes sold above that level would be subject to a资本 gains tax at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.

Officials believe that this threshold would hit around 120,000 homeowners who are
higher-rate taxpayers with capital gains tax bills of just under £200,000.

“This will impact a relatively small segment of buyers, but it risks creating uncertainty at the top end of the market,” says Syms.

Pushing the cost onto sellers actually risks reducing supply, as it will make some homeowners think twice about moving

“International buyers in particular could be deterred, which may influence the wider prime property market.”

Whatever options Reeves decides to take up at the Budget in a few months’ time, it is clear that the Treasury is looking at measures that seek to shift property tax burdens to sellers and property investors.

These players, and their accountants, will look to find the devil in the detail on Budget day.