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?

@Paulina23 I am a youngster (28 years old) who bought a 2 bed london flat in 2019. No mammoth deposit from BOMAD but did live for free with MIL for 3 years which i suppose can equate to the same amount of savings. I have never and will never vote Tory. London is solidly labour and there are a few constituencies which vote tory but they are not very significant when compared to the red wall seats.

The thing about the Home Counties Tories (4 bed detached house with 2 kids in private school) is that they are ideologically bound to the tories. There are no other parties for them to switch to. Lib Dem is too small and they cannot stomach voting for Labour. Remember these are people with enormous self belief in their own capabilities- they believe that their success is due solely to their hard work so they would never vote for a party that advocates redistribution of the country's wealth even if the party they support sells them down the river for some new northern voters. Its like the Brexit fishermen- even when their industry is decimated due to brexit, do they turn around and say . oh crap i am supporting remain and buying myself a red labour party rosette. No they stick to their convictions, no matter how misguided. I think based on the electoral map, the Tories are better off focusing on the swing voters in the north.

Its true there are some young voters (below 40) who may have voted tory and might stop voting tory because they can't afford the taxes and aren't that invested in the Tory narrative. But they may have switched to labour for a whole host of other reasons anyway.

This property tax model is what exists in the US, although it is set by local governments (like council tax) instead of at the national level like what is being proposed for the UK. In some places the tax rate is around 2%, so you would pay 20k per month just in property tax for a $1m+ home. It is definitely a prohibitive barrier to owning more expensive homes, especially for the elderly who bought when property was much cheaper.

Sorry, 20k per year, not per month!

[quote onlychildandhamster]@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]
Your numbers don't make sense though? How would a £150k property be £720/year but a £400k property be £500/year? It should be £1920 if I've calculated it correctly?

@ AppleStars extra £500 per year at £1920. My current council tax is £1416.

@AppleStars extra £500 per year at £1920. My current council tax is £1416. £40 quid extra isn't hardship for me as I save at least 20% of our post tax joint income even pre covid

*£40 quid extra per month in case that isn't clear

[quote onlychildandhamster]@AppleStars extra £500 per year at £1920. My current council tax is £1416. £40 quid extra isn't hardship for me as I save at least 20% of our post tax joint income even pre covid[/quote]
Ah I see, I misunderstood your post.

I cant see how it is fair to tax people on assets that were bought with money which had already been taxed. And its very punitive on older people who have had their homes for years and are often living on a much lower income now. Would throw many peoples retirement plans into complete disarray. Tax should be based on income, so people who have saved all their lives and lived frugally to plan for the future, are not disincentivised from doing so. We already have inheritance tax and capital gains tax so the gov get their cut of capital gains.

@WellIWasInTheNeighbourhoo There is a lot of talk about UK being singapore on the thames- low cost, low regulation. But the joke is- people can't say that this policy isn't Singaporean because Singapore does have property tax, but there are huge differences between the owner occupied rate and the non owner occupied rate. It was very difficult for my Singaporean father to understand that there isn't property tax in the UK, only stamp duty (one off and lower for FTB like myself) and council tax (which is paid for by renters and owners alike, unless you are on low income, a student or live in a caravan, you have to pay council tax). He kept telling me about the costs of ownership and how it was more expensive that you would expect (he pays masses as he is a commercial landlord and our family home is quite a large house built for 3 generations), but i had to tell him that this didn't apply in the UK at all. However there is no capital gains tax.

I can quite imagine the tories doing this. slashing capital gains tax and implementing residential property taxes. Northern voters would be happy, rich businessmen would be happy (family home is not a large percentage of people's earnings). Only salaried middle class in SE/London would be unhappy and how many of them actually vote tory anyway.

@WellIWasInTheNeighbourhoo problem with income is that most wealth isn't in salaried income. In america, it is said that 60% of all wealth is family wealth, a lot of which is tied up in property. This is set to grow to 80%. Is probably true in the UK too. You could raise inheritance tax but this would mean parents downsize at 60 and give children a lump sum to buy similar expensive properties. In some ways, the young person receiving a huge deposit to purchase £700k house has untaxed unearned income stream too. I do sympathize with the pensioners on fixed income too, but other people in the thread have suggested deferring payment of the taxes until death and the house is sold.

@WellIWasInTheNeighbourhoo 'family home is not a large percentage of people's earnings'

Sorry meant to say that family home would not constitute a large part of a rich person's assets so they might be happy with property taxes if other taxes like capital gains tax are lowered. And the tories are talking about increasing work week to 60 hours and 'reforming' labour laws so that is a direct win for businessmen. They wouldn't be crying about an extra 2000 quid a year after that.

@onlychildandhamster
I would have thought that for the vast majority of people in the UK, their biggest and often only asset is their home. An asset paid off over many years with income that has already been taxed, as well as interests payments which usually double the original loan amount. To then turn around and tax that one asset yet again will only harm the majority of average working people, reduce home ownership and drive even more families into renting and debt. And the very wealthy who have property portfolios will find a way around it. Singapore has no capital gains or inheritance tax, so I can somewhat understand it working there. Australia and New Zealand have that model too, no CGT, IH or Council tax, but an annual property tax based on the value of the property. Implementing cgt, ih and a property tax would make the UK a very unattractive place to live financially.

@WellIWasInTheNeighbourhoo the problem is the average house in uk is 250k and as posters have attested, they would not be paying any more under this model. I mean, this is replacing council tax, not in addition to it. And this government is interested in deregulation, and cutting red tape usually means decreased costs of business.

We have left the Eu now, so short of going to ireland, most Brits would have to get visas to live abroad. This is actually getting more challenging year on year in Asia as increased educational standards have meant the locals are as qualified as the expats with the bonus of being cheaper. Dubai isn't everyone's cup of tea. America could be much more expensive with property taxes AND health insurance. Jobs on the continent require foreign language skills. that just leaves Australia, New Zealand and Canada. Also with the rise of remote working, a lot of companies may question the added value of expensive expat contracts. So a lot of Brits are effectively stuck here.

But in a sense, thats why this tax is concerning. It doesn't harm the majority of people in the uk, most people are actually saving money. The people it harms are average home owners in London/SE (and its kinda a national pastime to hate london anyway so people would be happy).

Over 50% of the English population live in London and the South. I would also hazard a guess that given higher wages in London and the South its also where the majority of tax comes from. So it very much would be harming the majority of people in England.

And although yes most people are trapped here, it would certainly not encourage the immigration of 'highly skilled' global workers that Brexit was supposed to open the UK up to. And its 100% certain that the costs will be passed onto renters, entrenching even further poverty on those who cannot afford to buy. I cannot see how another punitive tax on middle class families is a positive thing. Given the huge and widening gap between the super wealthy and everyone else in the past few decades, in my opinion taxing them is the only moral way forward.

@WellIWasInTheNeighbourhoo i don't think it would dissuade global workers if they have good job opportunities here. After all they are under no obligation to spend their retirement here. They can buy a home here, pay the taxes as long as they are earning good money and then retire in their home countries.

What would matter more to them is the income tax rate.

@WellIWasInTheNeighbourhoo but yes i can see a huge backlash for all the reasons you mentioned... but would it really matter to the tory party in terms of votes, that is the question!

I don't see how they would do the valuations. As others have said. Last sale price would make no sense as it bears no relation to actual value of the house.

Taking a postcode average for type of property is they only way I can see being administratively doable.

I'd rather council tax was based on number of people in a property. That is who the council tax is for. The residents under that council. There are a lot of people who either deliberately house many generations under one roof to avoid paying CT or have adult dc not contributing who are still working ft and living with mum and dad etc.
That makes more sense to me.

@redbobble I really don't think the asian families who live together are doing it to avoid paying CT. They are doing it cos its their culture for the family to live together so that the children can care for the elderly parents. Even if said elderly parents are still working.

I wasn't meaning any particular culture I'm British and I lived at home until 22 and was working ft then, surely I should have been contributing in that situation? surely this would also solve council tax being stretched over the amount of people who end up whichever way not contributing at all.

@redbobble and like previous poster said, Poll tax was a very unpopular tax. People can disappear but not properties. If it was based on number of people, people would underreport the number of residents and people would deregister to vote (so that the council wouldn't know where they lived). We would have to have council officials going to houses to check the number of adult residents. Unless we get a german style system where you need to register your residency with the council and you can't get a job or open a bank account without it.

@redbobble

I'd rather council tax was based on number of people in a property. That is who the council tax is for. The residents under that council. There are a lot of people who either deliberately house many generations under one roof to avoid paying CT or have adult dc not contributing who are still working ft and living with mum and dad etc. That makes more sense to me.

Didn't we have this and it was called the poll tax and most people moaned about it.

There are certainly ways around ensuring it is paid fairly, and if all taxes were based on popularity we'd have a lot less tax going around...

@redbobble would be a brave tory PM to implement this given that it caused Thatcher's downfall. Bojo wouldn't be up to it.

And as a disclaimer, i think if labour gets back into power, they wouldn't dare to implement this tax as the cries of 'socialism' from the daily mail and the sun would render it fairly unpopular even with the people it doesn't affect.