With just a week to go until the autumn budget, speculation is rife as to which areas chancellor Rachel Reeves could target to help repair the UK’s public finances, with changes to property taxes rumoured to be on the table.
The chancellor is expected to announce billions in tax rises in the budget on 26 November in an effort to raise funds.
Reeves laid the ground for potential tax rises in a speech delivered at Downing Street in early November, as she said that since last year’s autumn budget, the “world has thrown even more challenges our way” and that “each of us must do our bit” for the future of the country.
When speaking to journalists after her speech at the time, Reeves refused to say whether she would stick to the Labour party’s manifesto pledge of not raising taxes on “working people”, in which it promised not to increase the rates of value added tax (VAT), national insurance and income tax.
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However, it was reported on Friday that the chancellor had dropped a manifesto-breaking plan to increase the rates of income tax. The decision reportedly came after she received better-than-expected economic forecasts from the Office for Budget Responsibility (OBR), with the UK’s fiscal hole now anticipated to be closer to £20bn, down from a previous estimation of £30bn.
Instead, it has been reported that Reeves could be looking at freezing the threshold at which people start paying income tax for another two years, along with changes to other areas of tax.
That includes taxes on property, with changes to stamp duty and council tax said to have been among the options considered by the Treasury.
One rumour is that the government has considered scrapping stamp duty and replacing it with a national property tax on homes worth more than £500,000, which would be paid by the sellers rather than the buyers.
Stamp duty is currently paid by buyers on homes worth over £125,000, a threshold which came back into effect in April this year, lowered from £250,000.
Richard Donnell, executive director at Zoopla, said: “Ideally, we believe stamp duty land tax (SDLT) should be abolished, as we told MPs at a recent Treasury Select Committee, but we understand the £10bn revenue gap this would create would require major council tax reform to help compensate.”
Instead, he said that a more “modest, immediate” measure that would help buyers across the country would be to raise the 5% stamp duty threshold from £250,000 to £500,000.
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“This change would significantly reduce the tax burden for the typical buyer in southern England, making home ownership more accessible and easing mobility for existing homeowners, all for a modest cost to the exchequer,” he said.
Another option that has reportedly been considered by the Treasury is spreading stamp duty payments across several years, according to City AM.
Property website Rightmove (RMV.L) said that research among its in-house panel found that one of the most commonly suggested reforms to the stamp duty system was the ability to spread payments over time.
Other suggestions included adjusting stamp duty thresholds by region, in an effort to make payments fairer, as well as changes that protect older homeowners and downsizers.
Another rumoured area of reform is council tax, with reports that the Treasury has considered creating new, higher council tax bands on the most expensive homes.
Council tax is charged on residential properties to help fund for local services, such as schools, rubbish collection and leisure centres. The amount is based on the value of someone’s home, with rates running across eight bands of property value. These bands are based on property valuations from 1991, so have faced criticism for being outdated, given the growth in house prices since then.
“There is no doubt a revaluation and recalibration of council tax bands is overdue,” said Lucian Cook, head of residential research at Savills (SVS.L).
In addition, the Guardian reported in August that officials had looked at replacing council tax with a local property tax in the medium term to help repair local authority finances.
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A “proportional property tax” is one idea that has been floated to replace council tax and stamp duty. The Institute for Public Policy Research (IPPR) said that it put forward a case study for this tax in 2021, which would be levied annually on up-to-date property values.
“The reforms outlined would cut bills for three in four households, free up an estimated 600,000 homes within five years, and add £3bn to GDP in 2019 values through greater housing market activity,” said the IPPR’s Aditi Sriram and Carsten Jung.
Meanwhile, a report published in August last year by centre-right think-tank Onward proposed a “horizontal” split model for a proportional property tax. This would mean paying a proportional tax towards local services on house values below £500,000 and a national levy on the value above that point, according to the report written by Onward’s chief economist and former senior government advisor Tim Leunig.
The Treasury has also reportedly considered making the sale of higher value primary homes liable for capital gains tax (CGT).
Another mooted option is a 1% annual charge on the value of a property worth more than £2m, dubbed effectively as a “mansion tax”.
One suggestion is that the government could also introduce national insurance on the income landlords earn from renting a property.
A spokesperson for the Treasury said: “The chancellor has set out the context for the budget, recognising global and long-term economic challenges.”
“It will continue to build the strong foundations to secure Britain’s future and on the priorities of the British people – cutting waiting lists, cutting national debt and cutting the cost of living.”
Uncertainty around potential changes to property taxes is already said to be impacting market activity.
Rightmove said on Monday that the average new seller asking price in the UK fell by a larger-than-usual 1.8%, or £6,591, to £364,833 in November. The property website highlighted hesitancy in the property market as budget speculation fuelled uncertainty.
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Separate Rightmove research surveying over 10,000 potential movers, released on Thursday, found that nearly a fifth (17%) said they had paused their plans due to uncertainty about changes to property taxes in the upcoming budget.
Colleen Babcock, property expert at Rightmove, said: “While most movers are carrying on as normal, it demonstrates how unhelpful the uncertainty over potentially costly changes can be.
“I think most are now fed up with the rumours and would like to see the final contents of the budget and assess how they’re impacted.”
UK’s housebuilders have also shared their concerns about the impact of uncertainty in the run-up to the budget.
Shares in UK housebuilder Crest Nicholson (CRST.L) tumbled on Tuesday, after the company warned of lower pre-tax profits.
Martyn Clark, CEO of Crest Nicholson, said that this reflected a “housing market that has remained subdued through the summer, and the continued uncertainty surrounding government tax policy ahead of the forthcoming budget.”
Taylor Wimpey (TW.L) and Barratt Redrow (BTRW.L) have also pointed to the impact of budget uncertainty in recent results.
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