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?

@WellIWasInTheNeighbourhoo

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.

You only paid tax on the money spent to buy the house, but for many around London and the south east, the additional value from decades of housing price inflation has been totally untaxed. Given that whoever bought in 1995-2000 has seen value increased by 3x to 4x, it is an obvious untapped source of value creation that has not paid its fair share to society.

In terme of fairness, the opposite point is also valid. Right now, the amount someone earns is practically irrelevant to his/her capacity to buy a house. Assuming, this person and his partner both earn a respectable 75k each, and managed to save 100k and raise couple of kids in the process, they could only ever afford 700k house (good luck with that in any semi decent area). So you end up with cash rich/asset poor people that have climb the professional ladders being no better off that rich/cash poor household whose only financial merit was to be born 10-15 years and, in most cases, wouldn’t be able to afford their own house if they had to buy now on their salary. It’s down to a political choice, is it fair to reward successful individuals or should they instead pay more tax to carry one subsidising a ringed housing market with gov props.

I’m not entirely sure how long it took you to type that @Paulina23 but it misses a crucial fact. Any profit anyone makes on a house is fairy money until they either down size or die because the next purchase will also have risen in value. An awful lot of those fabulous profits either go to pay care home fees or are subject to inheritance tax.

It would force many out of their homes. Whether that concerns you or not, I’m sure it concerns many. The current price of a property doesn’t relate to how much you paid or your income. It’s your home. It’s why taxes should be based on income. It centres on the ability to pay and avoids double taxation.
It would mean I would have to move to another cheaper area of the city I live in, moving away from my children’ s school and into an area I probably wouldn’t feel as safe. I spent many tough years prioritising and paying the mortgage.

It’s also not untaxed income. There is no income. It’s a home.
If it’s passed on, there will be inheritance tax to pay.
If it’s an investment property, there will be capital gains tax due on sale.

I support this even though would have a fairly large payment. The property market is fecked.

The general population hate inheritance tax & I don't think we can keep targeting income so something else does need to be considered.

@savemymuu

The general population hate inheritance tax & I don't think we can keep targeting income so something else does need to be considered.

The amount raised by inheritance tax is very small because only about 5% of estates are large enough to pay it. I think it’s fair enough, personally. It’s tax that isn’t paid by the recipient of the money. Windfall money at that.

The population don't like it though which was my point.

and won't want the thresholds to be lower.

I'm also happy to pay that extra £800 a year - stupidly low council tax here, no idea why

Bring it on

I'm not sure it would affect prices

So prices go up and those on average wages are forced out of their homes. Hmmm.

I think it would impact prices in the same way stamp duty has but only at the top end

top normal end not 21m for a flat top end!

@Blackberrycream

So prices go up and those on average wages are forced out of their homes. Hmmm.

In the south-east/London, people on an average wages can’t afford to buy anything on their salary only unless they bought ages ago so that would mostly target a lucky generation that may be close to retirement now.

That’s all right then. That “lucky generation” can just take the hit. Usual MN ageism at its finest.

So it is acceptable to target them just as they reach retirement?
I am thinking of my sister in law, a nurse, who owns her terrace in South London. When she bought it, it was not an area people wanted to live. She has worked all her life and has just retired.
Your attitude is actually quite nasty.
Taxation is not supposed to ‘ target’ people. God forbid you are ever the target.

Don’t shoot the messenger, that’s exactly how tax planning works. As for the generational battle, the 25 years old nurse in London will never be able to afford a house of any size, anywhere. And she will also work all her life.

@Paulina23

Don’t shoot the messenger, that’s exactly how tax planning works. As for the generational battle, the 25 years old nurse in London will never be able to afford a house of any size, anywhere. And she will also work all her life.

My stepdaughter’s a 28 year old nurse in a very large city. She’s just bought her first flat. And it isn’t how tax planning works.

@Paulina23

Don’t shoot the messenger, that’s exactly how tax planning works. As for the generational battle, the 25 years old nurse in London will never be able to afford a house of any size, anywhere. And she will also work all her life.

No it is not how tax planning works.Tax is income based for very good reasons. It sounds like it is how you would like it to work. You sound like a spoilt brat resentful of what you see that people have with little understanding of how housing works. You do realise that a lot of people buy in ‘undesirable’ areas initially. Are you expecting to buy in an established area? That is not and never has been an option for a lot of people. When my sister in law bought, she bought in a cheap area. I’m sure she would have liked a lovely house in Hampstead but that’s not how it works. It’s still possible to buy a flat or house just not in the fancier areas. My nephew looked for jobs in the Northern cities. He has just bought in the London outskirts. Property can crash as well. It is likely to fall this year. Most people choose to buy in order to gain long term security. As their income falls, the mortgage will be paid off. This is not something to discourage as the alternative is state dependency. Our state pension is not sufficient to pay market rents. Your facts are not correct. A quick google on Rightmove will show you that. Your post is entitled in the extreme.

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).

Meanwhile in the north with a house worth less than your flat we'd be paying about £1000 less per year on council tax (we're band F). Of course it'll take quite a few years to balance out the stamp duty we did have to pay since we weren't FTB. To slow down house price growth in the south they should stop letting rich 20 somethings not pay stamp duty on expensive flats.

There does need to be a way of taxing assets rather than income though, whether that is slapping everyone with inheritance tax and shutting all the loopholes (really not popular with farmers who want to pass on the family business to their eldest son) or council tax based on property values. There's something to be said for people moving house at retirement to a smaller property freeing up the family homes.

I don’t know if it would affect property prices because when someone comes to buy there isn’t the need for a large lump of money taken for stamp duty. If anything the million pound properties would probably rise slightly

I Agee about some tax on assets but I don't think house, of all things, should be that assert. It's the one asset that Joe public actually can have and usually as a home not an asset, plus, any value increase is really just theoretical unless it's sold, so capital gains on sale value would make more sense IMO.

Glad to hear your extended family is doing fine BlackBerrycream and your advise on how to use Rightmove. Meanwhile the average property value to median income ratio went from an historical 5x to 12x-16x in London, so no, people have not always bought in undesirable area waiting for gentrification to work its wonder. Housing was simply way cheaper and a lot more affordable for everyone . 12 years of liquidity binge from our dear central bankers around the world have inflated asset prices to orbit, increasing the divide between asset owners and the rest, so taxing the income rather than capital may have been the correct approach it’s not totally unfair to shift some of the burden to asset owner to rebalance the distribution of wealth across society. But don’t your worry for your wallet, the average Tory voter’s age is 61, so nothing like that will happen under their watch.

@JaninaDuszejko lol i am a 20 something and I did pay stamp duty on my flat. IYou have to pay stamp duty on any amount above 300k and its quite hard to buy anything below 300k in the SE, even if you are buying a 1 bed. And I am not rich at all. Far from it.

Paulina
You really have no idea of my circumstances and are making some huge assumptions. If you believe I am wealthy or doing well, so be it. I have a house and 2 young children. Part of the reason I have the house is due to the death of my husband. I would really prefer it to be otherwise. I was widowed and am now unable to work due to caring responsibilities for reasons I don’t want to discuss on here. I have a house but have a very low income. The house is one of the few stable things in our life. Do you not think you might be targeting the wrong people? It seems you want a race to the bottom.
And people wonder why the working class have abandoned Labour!
Anyway, no it won’t happen you’re right. Not to protect wallets but because most understand the dangers of double taxation and taxing notional profits, not actual profits.