Would property prices decrease in London/SE if there was a new property tax

[onlychildandhamster]

There is an article in the times, but the text has been replicated in this thread:

www.reddit.com/r/ukpolitics/comments/kz1oqv/rishi_sunak_eyes_tax_rises_in_march_budget_rishi/

While there will be no radical change to property taxes in this budget, ministers and officials are looking at the tally of winners and losers from the abolition of council tax and stamp duty.

They would be replaced with a proportional property tax, levied on the existing values of homes. Council tax is calculated on property valuations from 1991.

WPI’s analysis shows that the tax would be revenue-neutral — raising the same as council tax and stamp duty — if the levy were set at 0.48% of the value of a home.

That would mean someone owning a £150,000 house would pay £720 a year, just £60 a month. The average band D council tax in England for 2020-21 was £1,818. But a family in a £1m house would have to fork out £400 a month, or £4,800 a year.

Based on that figure of 0.48%, an owner of a £400k london flat like myself would be paying an extra £500 in tax per annum or around £40 plus quid a month so not the end of the world as opposed to Band C Council tax (my current band). However, the owners of £1 million properties would be the worst affected. And while most people on Mumsnet are probably not buyers of £1 million properties (though it is surprisingly common in certain areas), AIBU to think that people would think twice before offering a staggeringly high price for a property given that it would attract a permanent tax liability that would increase with price inflation and continue well into retirement.

The conventional wisdom here is that property is always a good investment as the mortgage would be paid off one day and council tax for Band D properties is not hugely dissimilar to smaller properties (my MIL in Band D pays hardly any more tax than me). However would you still think that if you would get hit with a property tax forever?

I think it's a fantastic idea and say that as someone in London who is not a million quid house but is in a flat that would mean I would pay more under this scheme.

Would it affect house prices? If everything else held the same then yes. But if governments keep interest rates low then there is cheap money available that tends to go into property so that could easily offset the slightly higher tax burden for high earners.

Where it might bite is people who live in a million quid house that they bought when things were less mad, 40 years ago and are perhaps on a fixed pension income now.

But honestly, I don't have that much sympathy despite my parents being in that category. They can sell their four bed houses and downsize to a smaller, cheaper property in the same area - no loss of support networks and a much more manageable sized property while freeing up four bedroom homes to be bought be families with kids at home.
It would be a good thing overall

People don't offer "staggeringly high prices" for shits and giggles It's supply and demand. A family that needs a house of a certain size or in a certain area isn't going to suddenly not need that, just because the cost of living there increases. In the same way that pushing up rail fares doesn't dissuade people from commuting by train - people have no choice but to suck it up.

A scheme like this might make more money for government, but it wouldn't stabilise house prices, and would actually make things harder for people trying to move up the ladder.

@PowerslidePanda even during the pandemic, there were people offering above asking price for 700k flats in muswell hill. A large part of that is definitely because of confidence that it is a desirable area and prices would increase or at least stay stable. No one needs to live in muswell hill.

When I was buying, I found that because of the fact that council tax can be higher outside London it was actually cheaper to stay in London when balanced against commuting costs and the higher house price I paid wasn't subject to tax other than stamp duty which was reduced for me- so it was a tax free investment that I could cash out on in a sense. I feel like if there was this tax, this would be an additional consideration and depending on who is commuting, would be an argument for buying a cheaper property and paying the season tickets

An extra £40 every month will still be tough for many to find, a £400k house is just an average 3 bed round here. Not sure it will have a huge impact on house prices at the higher value you mention though.

I would support this. And I would lose given I have an above average value house. But there does need to be some thought about how to deal with old people in large houses on small pensions. It’s all very well to say they can downsize but it’s not always easy, either practically or emotionally. So some sort of deferral scheme will be needed to roll up the tax against a charge on eventual sale. The mechanics exist for care home fees so it’s not unprecedented.

Personally I think council tax should be linked to household size and make-up and therefore to service use. DP and I pay the same as our neighbours who are a family of five, despite having a much lower impact on local amenities and council-provided services.

In the absence of that then I suppose it makes more sense to align it with more recent property prices; although that’s going to hit a lot of older people who bought family homes back in the day and haven’t downsized, and who may not be able to afford an extra couple of hundred a month. Can’t imagine that’s going to be a political goer.

@ComtesseDeSpair it apparenntly is a vote winner in the north. At the same time, it would inhibit local government in the north- mostly labour dominated, as they can collect far lower taxes and this would mean cuts to public services. Win-win all around- people in the north can feel happy that they are paying lower taxes while people in london/SE are paying more; and they can blame labour local government for cuts to public services.

I don't really see the point of it or think it would work. It would have to be a whole overhaul of the tax system for it to work. Council tax goes to local authorities, so if a tax like this came in then either councils in the South East and London would end up raking in loads of cash (widening the north/south divide) or the tax would have to go to central government and be divvied up evenly.

Then the people it affects the most are the people that are already struggling. Those working minimum wage jobs in the SE, paying £1000pcm+ rent would get lumbered with say £200 a month tax. When someone in a northern town, getting paid the same minimum wage would could have £400pcm rent and only £60 tax.

Then it comes to working out the value of everyone's property. Yes, they can look at the purchase price of the property and then adjust it to match inflation. But say for instance you buy a house that's in a state for £500k, spend another £500k on it, double the size and increases its value to £1.25m how are they to know?

As for property prices, its supply and demand so I don't think it'll affect them too much. Unless there is a point at which it becomes a huge jump, for instance from £600 a month at £999k to £1000 at £1mil.

I think council tax should be linked to household size and make-up and therefore to service use.

Thatcher tried that and it lost her her premiership. The Poll Tax was the most reviled tax in history.

On the basis of 0.48% our council tax would be exactly the same under this system.cost neutral for us with the bonus that the house would be easier to sell.

@zzzebra a family in a £1m house would have to fork out £400 a month, or £4,800 a year. in my borough, Barnet council tax band F is £2,319.55. I looked up a random £1 million house in my neighbourhood and it was Band F. Its double basically for a million pound house for the whole time you live there.

for someone like me with a 400k flat, the figures aren't as scary- extra £500 a year. This is because council tax was a regressive tax to begin with

[quote onlychildandhamster]@PowerslidePanda even during the pandemic, there were people offering above asking price for 700k flats in muswell hill. A large part of that is definitely because of confidence that it is a desirable area and prices would increase or at least stay stable. No one needs to live in muswell hill.

When I was buying, I found that because of the fact that council tax can be higher outside London it was actually cheaper to stay in London when balanced against commuting costs and the higher house price I paid wasn't subject to tax other than stamp duty which was reduced for me- so it was a tax free investment that I could cash out on in a sense. I feel like if there was this tax, this would be an additional consideration and depending on who is commuting, would be an argument for buying a cheaper property and paying the season tickets[/quote]
So under your new plan, where do you think the people buying in Muswell Hill will buy instead? Sure, they might go for somewhere cheaper - but cheaper as in Hackney or Woking - still London/SE. With those areas suddenly being more in demand, prices in those areas will increase. Meanwhile, people selling in Muswell Hill will be saying, "A house in Hackney costs X - mine is equivalent, but a much nicer area - so I can set my price at XX". And because it's a desirable area people will pay it. So how, exactly, will this lead to a decrease in prices?

Hm

Power-grab from local councils to the Treasury springs to mind

@PowerslidePanda well its not my new plan, its the government's suggested plan to pay the costs of the pandemic.

Combined with increasing homeworking, it may push people further out. I guess when i said SE, i meant prime SE locations which are comparable to london house prices- guildford and St Albans with relatively shorter commutes. In the past, I always said a big justification for staying in London despite the high prices and smaller spaces was the untaxed equity gains which you can potentially convert to actual £££ when you sell up, unlike commuting costs which you can never get back. There was that adage that once you leave london, you can't afford to go back, which makes a lot of people scared to leave because they fear being priced out forever and missing out on potential equity gains (certainly people like my MIL who bought a london terrace for 100k have achieved larger equity gains than people who bought a similar home outside london for 100k).

If buying a £££ house in London is going to attract huge taxes, there really isn't such a big gain and unless you have other reasons to stay in london like family/lifestyle, its worth rethinking. I love london and I wouldn't really like to leave (plus all the areas I like in the SE are often as expensive as london), but there are plenty of people who don't.

I don't know how it might affect prices - which is your question. I do think that the tax burden is falling increasingly on the same people. A large number of people don't pay Council Tax. Nor do they pay income tax. It simply does not pay to work - unless you are on the way to an excellent career or already earning loads.

A rise in CGT payable, stamp duty on second homes/shares and IHT would be better I think. Its not so much the fairness aspect as the difficulty in implementing it. Questions to consider:

1. How would the revenues be distributed considering the huge differences in average house price between Local Authorities? Would you have some v rich and others v poor or redistribute? How would you calculate the redistribution to make it fair?

2. How would the property value be ascertained? Last sale price is obviously problematic based on the amount of time people may have lived there and changes made to the property. Average price in the postcode per sqft is also difficult since property can be wildly different values based on type, style, state of repair, garden, street etc. If property needed to be valued then how often? Who would do it? Would we need to let government inspectors enter?

@blobblob

I don't know how it might affect prices - which is your question. I do think that the tax burden is falling increasingly on the same people. A large number of people don't pay Council Tax. Nor do they pay income tax. It simply does not pay to work - unless you are on the way to an excellent career or already earning loads.

As far as I know the only people who don’t pay council tax are students. And the only people not paying income tax have an income of less than £12.5k a year, that’s about 66% of a full time job on minimum wage. Job seekers allowance is £75 a week so it certainly pays to work, even if you earn the absolute minimum.

Council Tax Support/Reduction is often available for people on Housing Benefit or Universal Credit. Low income earners get it as do a lot of pensioners. I am NOT saying that people SHOULD pay it - I understand that there is a good reason why they can't. I am saying that the idea that Taxes should go up always hits the same people - not the super-rich and not the people on benefits - but the struggling workers trying to raise a family or save to buy a home. We need more creative thinking about who pays for society.

They would never get this through parliament in the current format. Stamp duty definitely needs to go to revive the housing market but the only sensible way to bring up the difference is via corporation tax. Ours is still among one of the lowest in the world.

Benefits are set against the personal tax allowance so they are, to all intents and purposes, taxable. I think we pay quite reasonable amounts of tax in this country, if only it were spent better ... I’d like to see the huge multinationals like Amazon pay more.

We live in £300k house band C and it looks like we would pay about the same as council tax or possibly slightly less. Not sure what average house price is at the moment but it's usually about the same as ours.

Sorry just see thread was about London, we are in the Midlands but probably representative of a lot of the country for house price

@Redrivershore it could also apply to the Midlands! There are expensive areas all over the country, but London/se is unique that there are whole neighborhoods where 3 bed house with garden is a million or close to it.

I'm not sure that tying property values to income makes much sense. The reality is the older you are, the less likely you are to be living in a house that you could afford to buy now. Our house has increased in value, but our income hasn't changed that much in the last 20 years. With 2 kids at uni, we're poorer than we've been in a long time.

We’d probably pay less, since we live in about the highest CT area in the U.K. In the borough next to us the CT is about half. 🙁

As for old people in bigger houses, I’d agree 100% about the deferral scheme. There will often come a point where, if they haven’t done it already, people will be too frail and/doddery - incapable of managing all the hassle of estate agents, viewings (buying and selling), solicitors, never mind getting rid of a lot of stuff. God knows it’s hassle enough when you’re young and fit. They’d need someone to manage the whole thing for them.
We have neighbours like that, in a 4 bed house. He’s disabled from a bad stroke many years ago, she’s 89, very frail and has PD. And neither of their dcs live nearby. No way on earth are they ever going to move now - except into a wooden box or a care home.

Highly doubt this get implemented as Sunak just spent 3bn of tax money to prop the market to new high via stamp duty holiday. If it is in the current form of 0.48% with no regressive mechanism, it ll be an absolute blood bath in London’s desirable area. Many people owing the good to impressive house are totally unable to afford their own house if they had to buy it again with a 20% deposit, usually either pensioners that bought their house for a tenth of current value or middle age couple who were lucky enough to jump on the property gravy train prior to 2009. They would simply had to sell to avoid the charge to hold such an expensive asset. The story is similar for flats, where most youngsters usually buy on a 30k a year salary each but with a mammouth deposit from mum and dad so they can stretch enough to buy a 700k two beds with the g/f.

If the conservative even dare mentioning this tax, they ll literally lose their baseline support overnight as the entire mindset of the typical conservative voter in London is the home owner who has either made a fortune in BTL or bought a property leveraging themselves to their eye ball in Kent or around with private school bill ticking like clock work to suck the little remaining disposable income left after mortgage. Not happening